Digby Jones has warned the government not to take its eye off the ball of domestic policy as it prepares for possible war in the Middle East.

In an interview for GMTV Sunday Programme, the CBI director general said the current focus on Iraq was distracting attention from other key policy areas.

Asked if he found ministerial leadership lacking in areas other than the Middle East, Jones said: "Yes, I do. You know, I think for instance on the euro, 'where are we'?"

"Similarly they've got to lead on public-private partnerships and reform of the public services," he said.

"Leadership means you become unpopular at times, leadership means you make very difficult decisions. And I can see elements of leadership, I mean the macro economic stability has come from leadership, certainly some of this foreign policy, Kosovo, leadership, Sierra Leone, leadership.

"But in certain domestic issues we don't quite see it in the same way."

Jones also urged Tony Blair to use his close relationship with president Bush to seek economic advantage for Britain.

"The prime minister has been going the extra mile with president Bush in many ways on the whole issue. We don't seem to be getting a lot back in return in a business commercial sense."

CBI chiefs are concerned that steel tariffs, agricultural subsidies, environmental matters and corporate governance and accounting standards are areas where the US could better take British interests into account.

The CBI chief also called on America to become more engaged with Western Europe

"I think Tony Blair has clearly had an effect on president Bush in terms of going to the UN, trying to win the argument in the media now what he's got to do, I want to see the other bit as well."