The government was urged today to give a £500 million budget boost to business through a series of changes to the tax system aimed at stimulating growth.

In its submission to next month's budget, the Confederation of British Industry (CBI) said a "modest" amount would help firms create jobs, invest more and meet their carbon commitments, as well as freeing up spending on infrastructure.

It came as former defence secretary Liam Fox threw his weight behind similar proposals and called on Chancellor George Osborne to simplify labour laws to stimulate UK companies.

In a letter to the Financial Times, Fox argued the labour market should be deregulated to "restore competitiveness" by making it easier to hire and fire.

The MP, who has kept a low political profile since his resignation from the cabinet in October, also urged the government to cut employers' national insurance contributions "across the board", paying for the move with the proceeds of spending reductions.

"The Budget must confidently assert that capitalism works," he said.

In his submission, CBI Director-general John Cridland said the proposed multi-million pound budget boost was affordable, especially as the government had found cash for weekly bin collections and the freezing of council tax.

The Confederation called for new models of private finance on infrastructure projects, including investment by pension funds, a simpler way of taxing foreign profits, and extending the government's youth contract to 16- and 17-year-olds.

The chancellor was also pressed to introduce a new capital allowance to attract investment in types of infrastructure which do not currently qualify, including nuclear power stations, airport terminals and waste treatment buildings.

Cridland also proposed replacing the carbon reduction commitment with a new climate change levy which he said would reduce red tape while maintaining revenue for the Treasury.

He said the chancellor appeared keen to pursue measures that targeted growth, but should do more to deliver on announcements made in last year's autumn statement rather than bring forward a raft of new measures.

"The chancellor must use this Budget to score the growth and investment policy goals he put forward in his autumn statement.

"We're calling on the government to make some targeted changes to the UK tax system, which could make an impact on business decisions and create new opportunities for growth.

"While the state of the public finances is tight, the chancellor still has an opportunity in this Budget to make sure the UK tax system is as internationally competitive as it can be."

The CBI also urged the government not to press ahead with a planned rise in air passenger duty, and said some Whitehall departments did not give as high a priority as they should to economic growth.

Cridland gave the example of "visa hassles" which he said were making it difficult for firms and universities to attract skilled staff.

He added that a call by shadow chancellor Ed Balls to boost the economy through additional borrowing "just wasn't affordable".