Business leaders have warned that the prime minister's aim of providing "British jobs for British people" could fail if there is no improvement in workforce skills.

The CBI is also calling on the government to do more to help those on sickness benefits back into work.

The organisation added that the skills gap for those out of work is "unacceptable" and that 4.5 million people were on benefit, costing taxpayers £12.5bn a year.

Tackling this would help firms recruit skilled workers as well as achieve savings for Whitehall departments, the CBI said in its submission to the government's green paper on welfare reform.

CBI deputy director-general John Cridland said: "The success of the prime minister's exhortations to 'employ Britons' is dependent on action to make them more employable.

"If the quality isn't high enough then no business can or should be expected to choose second best.

"The government knows what it has to do. But ministers need the political courage to push through with reforms and help people get back into, and stay in, work."

Cridland said that while employers are providing job opportunities, they should have the confidence to recruit from their local communities.

This would "help tackle social exclusion and lift individuals out of a cycle of benefit dependency".

"Specialist welfare to work providers in the private and voluntary sector are also showing what is possible if they are given the right incentives and scope to succeed," added Cridland.

"But this has only been on a small scale so far, and the UK needs this success to be seen on a much larger scale if the massive burden of welfare dependency is to be reduced."