SMALL businesses have called for an end to "downright unfair" practices after a major manufacturer renewed a call for a payment if suppliers want to remain on its books.

Premier Foods, the UK's biggest producer which counts several household names among its brands, has for the second year required suppliers to make an annual investment.

The Federation of Small Businesses said the firm "should be ashamed of themselves" for "demanding a cash gift under the threat of de-listing" and warned many smaller outfits would go bust unless so-called "pay and stay" arrangements were dealt with.

It said one small business in the South West was asked to hand over £1,700 "to secure the chance for future business".

One Premier supplier told the BBC it felt "like blackmail" and the Government said it was "concerned by recent reports" and was examining what further action could be taken, with a consultation under way on moves such as requiring firms to declare publicly if they employed such arrangements.

But the food giant told BBC2's Newsnight many of its suppliers, including small businesses, had been understanding of the move - which it was confident complied fully with both the law and its own stated ethical code - and encouraged those with concerns to come forward.

"In return, our suppliers benefit from opportunities to secure a larger slice of our current business. They also stand to gain as our business grows in the future," it said in a statement.

"In the current challenging environment, the support of all of our suppliers is crucial and we have had a positive response from many who are actively engaging in building a new partnership with us, including many small companies."

FSB national chairman John Allan said Premier Foods was the first to make such an explicit link between payments and inclusion on supplier lists and to make it an annual event rather than a one-off.

Labour has sought to restrict the practice.

Mr Allan said: "Premier Foods should be ashamed of themselves. Driving a hard bargain with your suppliers is one thing, but demanding a cash gift under the threat of delisting, is downright unfair.

"If the questionable practice being attempted by the likes of Premier Foods becomes the accepted norm, it may well sink those small firms without the cash reserve to prop up their larger customers.

"The Government has a golden opportunity with the Small Business Bill to take a firmer stance on payment practices. It also needs to do more to toughen up the prompt payment code, making membership more than just inclusion on hollow list of big companies."

A Department for Business, Innovation and Skills spokesman said: "The Government has already taken action on the issue of supplier lists where it is a problem in particular sectors, for example through the Grocery Supply Code.

"We are concerned by recent reports, and are consulting to assess the evidence so we can establish what more we can do. We are also consulting on whether the biggest companies should be required to report publicly on whether businesses need to pay to be on their supplier lists."

Newsnight reported that one supplier had been told by Premier that: "those who do not participate will be nominated for de-list."

A spokeswoman for Premier said there were "no guarantees" of work for those that were willing to pay but "we are clearly unlikely to want to build longer-term, strategic partnerships with suppliers that are not interested in helping us grow".

Reducing supplier numbers from 2,800 to around 1,230 by the end of the year "has been achieved through the natural expiry of existing contracts rather than 'de-listing' any supplier as such".

She added: "We are sensitive to the position of small suppliers. If any supplier has difficulty with our requests then we encourage them to come and talk to us.

"Many small suppliers also have the opportunity to be one of our strategic suppliers. In fact, three out of the five winners in our annual supplier awards in 2014 were small companies with less than 50 employees."

"We are fully aware of our legal and contractual obligations and we are confident that we are complying with these obligations."

Shadow small business minister Toby Perkins said Labour wanted to protect suppliers from "exploitative" arrangements.

He said: "This issue of businesses charging suppliers to be on their supplier list, or changing the payment terms so that suppliers are being paid very late, is a growing problem."

He said the Opposition had proposed legislative changes to outlaw the practice.

Mr Perkins told BBC Radio 4's Today programme: "I see it as exploitative, I see it as a huge business using an unfair position they have to exploit their suppliers.

"Businesses that have a much more constructive, a much more even relationship with their suppliers, are disadvantaged in the face of competition against people who are exploiting their suppliers.

"That's why it is already not available to supermarkets to do this and I think we should extend that to a broader thing across all business."