The Federation of Small Businesses is urging the government to expand a scheme that provides local authorities with around £300m a year to support entrepreneurship.

The government is planning to replace the Local Authority Business Growth Incentive (LABGI) scheme with an alternative that would see local authorities receive only £100m a year.

"Given the economic hardships that many are facing at the moment, a less generous scheme to support local businesses is exactly the wrong thing to do," said Roger Culcheth, FSB local government chairman.

"Extending and improving the existing LABGI scheme would be a shot in the arm for the 4.5m small businesses that generate over half of the UK's wealth."