Governments must resist the temptation to bail-out failing businesses, the trade secretary Patricia Hewitt said on Monday.

Setting out the UK's priorities ahead of the Barcelona summit on economic reform, she said state handouts to industry should be reduced.

In a clear warning the United States, Hewitt also warned that the UK would not sit back and watch tariffs being imposed on imports of British steel.

As the pressure mounts over US plans to introduce tariffs, she said: "We defend out right to consider options for preventing serious injury to the industry, including, as Pascal Lamy has stated, the possibility of safeguard measures."

She confirmed that the UK would seek a resolution to the dispute through the World Trade Organisation.

Better Aid

In a speech to the Foreign Policy Centre Hewitt also called for greater transparency in state aid programmes.

"Our goal should be less state aid and better state aid - reducing it when it undermines competition, targeting it to increase the efficiency and dynamism of our economies; and ensuring a more efficient, more transparent state aid regime."

The trade secretary said that policy makers must not yield to short-term pressure from business when a slowdown occurs.

"When times seem tough, the instinct could be to batten down the hatches, retrench, retreat, protect and wait for the good times to return. Demands on government to bail out loss-making companies become louder. The possibility of using legislative power to prevent companies from laying off workers could acquire a new attraction," she said. "But these pressures must be resisted."

And she warned other government's against over-regulation. "We must ensure that the benefits of a proposed regulation really outweigh the costs of implementing it," she said.

"We must stop instinctively reaching for the regulatory lever, like an alcoholic instinctively reaching for another whisky - convinced the answers to his troubles will be found at the bottom of the bottle."