Heat on Chancellor intensifies as small firms feel credit squeeze

The CBI has warned that the credit crunch is now taking its toll on smaller companies, with the pace of contagion into the wider economy growing.

One in five small and medium- sized enterprises (SMEs) surveyed by the business body said credit tightening by lenders was affecting, or expected to affect, their decisions and plans in the coming year.

The warning comes just a day before the CBI's annual conference and will make grim reading for the beleaguered Chancellor, Alistair Darling, who is expected to get a rough ride at the conference when he makes his keynote speech on Tuesday.

Ian McCafferty, the chief economic adviser at the CBI, said: "A minority [of SMEs] are feeling the pinch and have started to scale back business plans, while more expect the situation to worsen."

The CBI said that a quarter of SMEs suffering the effects of the credit crunch plan to cut jobs or recruitment, while more than a third say they will cut output levels as well. "These businesses are concerned that over the coming year credit will cost more and lending conditions will tighten further," added McCafferty.

In what is likely to prove an uncomfortable two days for Mr Darling and the Economic Secretary to the Treasury, Kitty Ussher, CBI members will express their anger at what many see as the botched changes to capital gains tax introduced in last month's pre-Budget report.

Some 40 per cent of the 500 SMEs surveyed said that the changes would have a negative impact, while a large portion heavily criticised the abolition of taper-relief incentives.

"The Chancellor needs to recognise the consequences of these ill-conceived proposals and must find alternatives to the capital gains tax changes as a matter of urgency," warned CBI director-general John Cridland. "These changes are trampling on the spirit of enterprise and discouraging entrepreneurs from investing in their businesses."

Three-quarters of the firms surveyed said the Government's heavily trumpeted commitment to an enterprise agenda was now in doubt

Following his controversial no-show last year, Conservative leader David Cameron is set to speak on Tuesday, with delegates hoping for a more detailed idea of Tory corporate tax plans.