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Business groups have welcomed the proposals in the pre-Budget report.

The chancellor, Alistair Darling, announced a raft of measures in his speech to Parliament including a £1 billion fund for small businesses and a cut in VAT from 17.5 per cent to 15 per cent.

The Federation of Small Businesses (FSB) had been calling for a fund to support small firms and were pleased this had been included in the report.

John Walker, FSB national policy chairman, said: "The government's Small Business Finance Scheme, which closely resembles the Small Business Survival Fund the FSB has been calling for, will provide a vital cash boost to businesses struggling with rising costs and a lack of credit."

The British Retail Consortium (BRC) also welcomed the changes but expressed concerns on their temporary nature.

BRC director general Stephen Robertson said: "Businesses require certainty. It makes me nervous that the chancellor has announced several major changes which are only temporary but these are unusual times."

On VAT reduction, the BRC's Mr Robertson said: "Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year.

"Small retailers will find all this particularly difficult to accommodate."

The Confederation of British Industry (CBI) said many of the measures met the organisation's own requests.

Richard Lambert, CBI director-general, said: "The £5 billion package comprising the small business finance scheme and loans from the European Investment Bank should, if well and speedily implemented, give critical help to small firms in need."

However, Mr Lambert added the report could have gone further. "The chancellor's growth forecasts depend on his success in stimulating consumer spending and otherwise look optimistic.

"On them also depends his forecasts for the budget deficit. It will be a long, hard haul to meet his deficit targets and given this, we would have hoped for an even greater emphasis on efficiency and potential savings.

"We are disappointed with the absence of a clearer framework of new fiscal rules."