HELP OUR SMALL BUSINESSES - CAMERON

Mr Cameron also called on local authorities to pay small businesses within 20 days, rather than 30, for their services.

And he said banks had to treat small businesses "fairly" and "stop the march to mass insolvencies".

Writing in The Observer, Mr Cameron said: "Britain's small businesses need our help.

"We intervened to prevent the beating heart of our economy - the financial system - from collapsing. We've got to do the same for its lifeblood.

"Small and medium-sized businesses employ over 13 million people and turn over £1,440 billion a year."

Shadow chancellor George Osborne said of the VAT holiday proposal: "This is another example of the Conservatives offering practical help to save jobs and businesses during very difficult economic times.

"Along with our plans for a freeze on council tax and a cut in small business tax, this is a measure that could be implemented immediately to help cashflow and in some cases prevent companies from going to the wall. It's the kind of thing a responsible government should do."

Mr Cameron will hold a small business summit at Westminster to discuss ways of helping firms.

The Tories claim that in recent months many small businesses have had their overdrafts either withdrawn or their interest rates raised above 15%. This could see many small firms go bust as a result.