Cut VAT to boost economy, says FSB

British business confidence in decline

Targeted VAT cuts are needed to boost economic growth, according to the Federation of Small Businesses (FSB), whose latest survey recorded a significant decline in confidence among small firms.

The national survey, which interviewed over 1,500 small business owners, found that confidence had dropped in 13 of the 18 sectors it monitors, in the three months to July.

Proposed cuts

The FSB is calling for VAT to be cut to 5% in the worst affected sectors – tourism and construction. The organisation’s Voice of Small Business Index (in which the more positive points, the more confident firms are on average) revealed that confidence within the tourism industry has plummeted from +13 to -4 points. However the construction sector recorded a rise from +2 to +3.

By contrast, car mechanics recorded the lowest confidence of any business sector in the UK, with an index score of -45. This is a significant decrease from its +20 result in the first quarter of 2011.

Government response

However the Treasury has said that a cut in VAT would have an adverse effect on government finances.

John Walker, national chairman of the FSB, said: “Evidence from other EU countries shows that any lost revenue to the exchequer by making VAT cuts will be met by earnings from additional demand, jobs and wider economic activity.”

He added: “More needs to be done to encourage businesses to take on staff and grow their business so that the recovery can really get back on track. The economy is still in a fragile state and these figures [from the Voice of Small Businesses Index] clearly show that the government’s growth strategy is just not working.”

Meanwhile, the Ernst & Young Item Club has cut its 2011 economic growth forecast for the UK, from 1.8% to 1.4%. It lowered predicted growth for 2012 from 2.3% to 2.2%, stating that unresolved worries about the global economy were likely to restrict UK business investment – with Greece and the Republic of Ireland causing particular concern to British banks.


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