Immediate action to slash public spending welcomed

The Tory leader's arrival in Downing Street was met with relief in the City after five days of uncertainty about the shape of a new government, although attention quickly turned to plans for tackling the financial deficit.

The FTSE 100 Index spent much of the session in negative territory before closing 49.2 points higher at 5383.4.

Entrepreneurs said the public sector and Government had to shrink in size and the Liberal Democrats were right to back Conservative plans to make 6bn of public sector cuts this year.

Jonathan Straight, founder of Leeds recycling business Straight, also expressed relief at the decision to scrap Labour's planned National Insurance rise.

Alan Hall, regional director of manufacturers' organisation EEF, said he was pleased at the formation of a deficit-cutting coalition but warned VAT could rise to 20 per cent for "three or four years".

Gary Williamson, chief executive of Leeds, York and North Yorkshire Chamber of Commerce, backed the appointment as Business Secretary of York-born Vince Cable and said he was popular with small and medium sized firms.

"His relentless focus on making sure that the banks lend to viable, credit-worthy businesses will be a critical part of his new position," he added.

Richard Kendall, policy executive at Hull and Humber Chamber of Commerce, called for an urgent decision on the backdated large tax demands of port users caused by changes in the rating system and said there should be early commitments to improving the region's roads.

Analysts say Mr Cameron has so far set out only a portion of the spending cuts and tax rises needed to deal with the deficit, forecast to reach 163bn for 2010-11.

Margaret Wood, regional chairman of the Institute of Directors in Yorkshire and the Humber, warned: "No one should be in doubt that tackling the deficit primarily through tax increases would jeopardise the private sector and the country's ability to pay for first-class public services in the future. Government needs to be much smaller."