Engineering chiefs are calling on the government to cut insurance premium tax after firms suffered rate rises approaching 1,000%.

The Engineering Employers' Federation estimates the government is receiving a windfall worth hundreds of millions of pounds from premium tax.

Federation chief economist Stephen Radley wants Chancellor Gordon Brown to cut the tax from its current rate of 5% to 3% to help struggling manufacturers.

He said premium increases were hurting hard-pressed firms.

"We've found companies facing increases of 40% for employers' liability and product liability, and 60% for property and general cover. But there are huge variations.

"Reducing the tax even by a small amount is only a partial offset, but at a time when manufacturers' profits are being squeezed, even changes at the margin can help."

One Newport-based aerospace firm was forced to renew its cover with a 927% increase.

Some of the federation's 6,000 members raised concerns about lack of competition and insurers dictating terms in compulsory sectors.

Radley said: "Some have struggled to find any cover at all for employers' liability. They have to take out the cover, so it means they've ended up with a take it or leave it offer."

He estimated insurance premium tax will have swollen the government's coffers by several hundred million pounds over the 18 months following the 11 September attacks because of the price rises that followed.

Radley said: "It's understandable that post-

11 September, insurers are seeking to recoup some of their losses and reassessing risks, but the sizes of the rises we're seeing don't seem to be justified by rational assessment of risks."