The next government will have to tackle the continuing decline in manufacturing, British Chambers of Commerce director-general David Frost said.

Manufacturing employment fell from 3.5 million to 3.2 million in the two years to February, he told the BCC's annual conference in London yesterday , adding: "This was before the collapse of MG Rover and the knock on effect that this will cause."

The job losses had largely been masked by the "huge growth" in public sector employment over the last few years, Mr Frost said.

But he went on to warn: "This is unsustainable - the current growth of public sector employment cannot continue. What we need to do is to re-invent enterprise in many communities across the country - almost to start again."

Mr Frost said he thought that too many initiatives aimed to kickstarting new business worked in isolation and often overlapped and competed with one another.

"The days of large scale inward investment have gone. Foreign direct investment is increasingly going to the low labour economies of Central and the former Eastern Europe.

" If communities are to be reinvigorated then we need to develop a spirit of enterprise which penetrates at every level and within every group of society - not least the young.

"So what we need is nothing less than a National Enterprise Strategy," Mr Frost said.