Tory leader David Cameron has called for a 1p cut in national insurance to help small firms weather the economic downturn.

He said the reduction should last for just six months and only be applicable to businesses with four staff or fewer.

In an interview on the Today programme on BBC Radio 4, Cameron claimed a tax cut of this kind — costing the Treasury £225m — could offer immediate help to small firms struggling to pay their bills.

According to the Tories the move would save small firms up to £600 and contrasts with attempts by chancellor Alistair Darling to ‘spend his way out of the recession’.

Mr Cameron said: “In politics you only have a certain amount of time and capital to expend - spend it on the things that will make a difference and that is where helping the cashflow of small businesses would actually be a lot more powerful.

“If you have a big deficit, as we do, if you then go on a further splurge and make it larger, everybody knows that means taxes are going to go up in the future so they behave accordingly, and also the Bank of England will be more reluctant to reduce interest rates.”

The Conservative party leader also said he wanted a six-month VAT holiday for small and medium sized firms and called on local authorities to pay small businesses more promptly for their services.

Chris Hannant, head of policy for business lobby group the British Chambers of Commerce, welcomed the announcements but said there also needs to be a 'clear and long term strategy for the numerous ideas which are now being banded around'.

“Small businesses are a major part of our economy and they play a big role in the community so we need to support them. Cashflow and confidence are the two key issues for businesses during a downturn, so a set of lasting policies that reflect these are essential,” he commented.

Speaking at an event at Downing Street last week, minister for competitiveness and small business, Shriti Vadera, said government departments were already taking steps to ensure small companies are paid for their services within ten days.

Vadera said the government was in talks with local authorities and the NHS to urge them to do the same.

© Crimson Business Ltd. 2008