David Cameron called for United States-style bankruptcy protection laws for businesses yesterday as part of a Conservative rescue plan for the economy.

Speaking at the CBI, the Conservative leader said that thousands of jobs could be lost unless companies were given breathing space to try to raise new finance. The US bankruptcy rules, under the Chapter 11 system, give firms court protection as they try to agree a deal with their creditors.

“The credit crunch has meant more companies are finding it hard to get the money they need to keep their business alive. That means one thing - more companies going into liquidation. And we all know what liquidation means - job losses,” Mr Cameron said.

The number of companies going into administration in England and Wales rose by more than a fifth in the first three months of this year, while those going bankrupt leapt by 25 per cent, government figures show.

Mr Cameron also refused to rule out increasing taxes to meet Labour's spending plans as he sought to spell out how a Conservative administration would deal with Britain's deepening economic woes.

The Tory leader insisted that taxpayers could not “take any more pain” as he laid out an “economic recovery plan” to business leaders that included more help for failing companies.

However, speaking before his address to the CBI, he said only that he “hoped” short-term increases would not be necessary to balance the books if his party won the next general election. “Government always has to do what is right to safeguard the public finances,” he said.

His remarks are likely to reignite internal controversy over the party's promise to match Labour's spending plans until 2011. Mr Cameron is already under pressure to ditch the policy.

A Chapter 11-style regime would give businesses in trouble the chance to raise new money by offering rescue financiers priority over other creditors. Rescue proposals would need only the backing of the court and a majority of shareholders - meaning that they could not be blocked by creditors.

However, insolvency practitioners questioned whether the scheme would work in Britain. Howard Morris, the chief executive of Denton Wilde Sapte, the law firm, said: “It's not a good plan, as it doesn't recognise the way we fund companies in this country. Banks are the main source of capital for new companies, and they will want to remain in control of what happens to a company which defaults on its payments.”

The plan also came under fire from Labour and the Liberal Democrats. Vince Cable, the Liberal Democrat Treasury spokesman, said that the measures would help only “incompetent executives”. He said: “Chapter 11 allows people who have mismanaged their companies to continue to run them free from their debt and pensions obligations.”

John Cridland, the CBI's deputy director-general, gave a lukewarm response, insisting that the “ramifications need to be carefully considered”. He said: “Many companies are likely to be involved when one business faces difficulties, and the challenge with any insolvency regime is to balance up all these interests.”

R3, the trade body for insolvency practitioners, said that a new regime would not be the cure-all for a slowing economy. Nick O'Reilly, its president said: “We need an insolvency regime that is fit for purpose both in fair and stormy economic times.”

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