By Jason Theodorou

A report from the Confederation of British Industry (CBI) has argued that small to medium businesses are a key part of reviving the UK economy. The CBI has urged the government to bring the deficit rapidly under control in a way that will not undermine the economy's ability to grow.

The UK’s leading business group argues this should be done by controlling spending rather than increasing taxes. The Government should focus on current spending, with a radical re-engineering of public services to deliver more with less. The CBI also said that for every £1 of tax increases, there should be £4 of Government spending cuts.

The CBI said in a statement: 'A radical re-engineering of public services is a must if damaging tax rises are to be avoided. Only an effective cost reduction strategy can safeguard future growth'. The group suggested an approach similar to that taken by Canada in the 1990s, where the administration overcame a government deficit by going back to basic fundamentals and reviewing all spending programmes.

Small and medium businesses were highlighted in the report as playing a vital role in growing the economy. The Government's proposals for continuing with a loan guarantee scheme was seen as helping with this effort, but the CBI suggested that the funds available for SME's could be brought together with one fund, creating a unified national operation.

The CBI said that tax rises should be kept to an absolute minimum, and that taxes such as Capital Gains Tax were a potential disincentive to investment or start-ups.

Chancellor George Osbourne will propose severe cuts to address the £156 billion deficit in his budget of 22 June.

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