Conservative leader David Cameron has outlined a new tax cutting proposal for businesses which he says is a “fully funded transparent tax reform” to create new jobs and fight unemployment as the economy enters recession.

Mr Cameron said the policy was fully funded by savings found elsewhere in government spending rather than increased borrowing.

Under the Tory proposals businesses would be offered tax breaks to hire more staff to the tune of £2500 per year per full time employee and £1250 per part time employee. Mr Cameron said the proposed tax breaks could be paid for out of savings made in unemployment benefit.

The Tories suggest it costs the government on average around £8000 per person per year for each person claiming unemployment benefit. The money saved from taking someone off unemployment benefit would be put into offering tax breaks to businesses, Mr Cameron said.

But several conditions apply for any business to benefit from the tax breaks:

The new employee must have been claiming unemployment benefit for a minimum of three months.

The new employee must not have been previously employed by the company that they are commencing employment with.

The new employee must only be on the basic rate of income tax – paying 20 per cent income tax on their earnings

The tax break would only available for one year

The tax break would only available for up to 20 per cent of a businesses workforce

Mr Cameron said government borrowing must be brought under control adding: “having maxed out one credit card is it responsible for the government to get another one?”

He also said further government borrowing would leave government hampered by having to deal with the third largest budget deficit in the world and that a future government would end up having to deal with servicing the debt rather than building schools and hospitals.

He claimed there was evidence from Canada that offering businesses tax incentives leads to job creation arguing that one in three jobs would not be created without such tax breaks.