Liberal Democrats have angered trade unions by calling for the Department of Trade and Industry to be scrapped.

The party's trade and industry spokesman, Dr Vincent Cable, has angered the trade union representing most of the DTI's 10,000 staff after saying their salaries would be better spent on literacy teachers.

"I would suggest closing the DTI altogether, its useful activities could be devolved. its £5 billion budget could be slashed and reallocated to essential services," he told his party's conference.

"Frankly, it would be far more useful to British industry to spend the money on a adult education programme to teach our shamefully large number of illiterate adults to read than hire thousands of civil servants to give unwanted advice and create a paper trail for businesses to claim handouts."

The vacuum created by the "abolition of the DTI" can easily be filled by existing institutions suggests the senior Lib Dem.

"Independent regulators now handle many of the DTI's traditional functions and the EU now oversees trade policy. Those remaining responsibilities could be better handled by devolved agencies like regional development agencies," he said.

Just a fortnight after Charles Kennedy wooed the TUC, the PCS union has branded the plans "ill-thought out and foolhardy".

PCS chief, Mark Serwotka, dismissed the call. "Speaking in defence of the thousands of PCS members in the 10,000 DTI workforce these proposals are at best ill-thought out, and at worst foolhardy," he said.

Serwotka argues that DTI officials play a key role in UK industry.

"The Lib Dems fail to explain how you can sensibly abolish functions vital to the UK economy delivered by DTI agencies, such as: Companies House, Patent Office, Employment Tribunal Office, National Weights and Measures Laboratory, and the Small Business Service.

"The work of the 5000 DTI staff in these agencies cannot simply be replaced by the EU or Regional Development Agencies, as Cable suggests," he said.

"The Liberal Democrats also fail to explain how legislation such as minimum wage, statutory holidays, maternity leave and other employment rights would be enforced with no DTI."

Conservatives joined the left-wing trade union leader in condemning Cable's words.

Shadow trade and industry secretary, Tim Yeo, said the Lib Dems were "disconnected" from business."The Liberal Democrats now seem perfectly prepared to abolish the only department in Whitehall that is prepared to stand up for the interests of British business," he said.

"The fact that they have to even ask 'why the DTI exists' shows how disconnected they are to the needs and concerns of British business."

As a background to his call to scrap the DTI, Cable also attacked Tony Blair's business model as "a marriage of Bush and Berlusconi".

He claimed that the prime minister has leanings towards "a business model that brings together the accounting systems of Enron and the management style of a Sicilian godfather".

"What this vision is creating in the UK is a kind of 'crony capitalism'. Businesses with personal access to the top are listened to...but it is totally indifferent to the thousands of small businesses strangled by red tape, or the manufacturers, farmers and hoteliers crucified by an overvalued exchange rate," he told his party's Brighton conference.

He said ministers were "dazzled" by individual business figures.

"Part of this cronyism is exaggerated deference to businessmen who will donate money to the party or give media support," argued Cable.

"But it isn't just the corruption of money; but also the corruption of flattery. Ministers whose knowledge of business is largely confined to childhood games of Monopoly are dazzled by the attention of CEOs claiming to speak for British industry."

"This cronyism is becoming institutionalised."

The Lib Dems are also alarmed that Labour's "incestuous" relationship with the arms industry has been "allowed to subvert Labour's so-called ethical arms policy".

"The 'Reverend Blair' talks about saving Africa in the tones of an evangelical vicar. But he has doubled arms sales to Africa," noted Cable.

Controversial Hawk fighter deals for India and air traffic control system sales to Tanzania are "morally cynical and economically illiterate" illustrations of state sponsored arms exports, he said.

"It is farcical that arms exporters are still subsidised under the Export Credit Guarantee," he added.