Firms 'to get credit risk help'

The cost of credit insurance has risen for riskier sectors such as construction

A scheme to help smaller firms cope with credit risk will be announced by the government in next week's Budget, the Financial Times has reported.

Companies have been hurt by a reduction in the availability of credit insurance, which protects them against the risk they will not get paid.

The FT said "medium risk" businesses that had found credit insurance hard to get would be offered guarantees.

The scale of the scheme still had to be finalised, the newspaper said.

'Difficult conditions'

Companies have been lobbying the government to set up such an initiative.

Supply chains have undoubtedly been hit by the withdrawal and reduction of credit insurance facilities

David Frost, British Chambers of Commerce

Thousands of businesses have been affected as credit insurers have withdrawn from high-risk areas, such as construction, and the cost of insurance for other sectors has increased.

This has meant that more suppliers are demanding cash on delivery, which can make life tougher for companies who are already struggling.

The FT also reported that Prime Minister Gordon Brown would make a decision later this week about whether motorists should be given an incentive to trade in old cars for newer, less polluting models.

A Treasury spokesman said that all decisions were kept under review by Chancellor Alistair Darling as part of the Budget process and any announcements would be made when the budget was unveiled next Wednesday.

David Frost, director general of the British Chambers of Commerce, said: "Supply chains have undoubtedly been hit by the withdrawal and reduction of credit insurance facilities.

"If implemented, a government guarantee scheme will help to ease the difficult conditions that small and medium-sized firms are operating in.

"It is crucial that any scheme is quickly and efficiently implemented so that struggling companies can take advantage of it as soon as possible."