Targeted VAT cuts recommended by FSB to improve UK economy

News Article - 21 July 2011
Category: Business

The Federation of Small Businesses (FSB) has urged the Government to consider targeted VAT cuts in order to accelerate growth in key sectors of the national economy - most notably construction and tourism.

This recommendation comes hot off the FSB's latest survey which reported a decline in confidence from the UK's small-and-medium-sized enterprises (SMEs) during Q2 2011.

The Ernst & Young Item Club has also slashed its economic growth forecast for 2011 in the UK from 1.8 per cent to 1.4 per cent. This has largely been blamed on a squeeze on household income across the country.

The FSB focuses on consumer demand as a means of economic growth in its Voices of Small Business Report.

"Consumer demand is a key barrier to economic growth so such a cut would encourage people to spend in these areas."

The FSB also revealed the most confident sectors within the UK economy at present, including manufacturing, computing and financial services.

"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 the wider economic activity."

Across the entire country confidence rose in only two regions - East Anglia and the East Midlands - which the FSB has put down to the resurgence in manufacturing.

There is concern that these new figures show a distinct lack of confidence in the government's growth strategy and that SMEs need greater encouragement to grow their business and steer the economy out of troubled waters.

John Walker, FSB national chairman, said: "The economy is still in a fragile state and these figures clearly show that the government's growth strategy is just not working.

"In an economy characterised by high unemployment and muted demand, 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."

Article keywords: Ernst & Young, growth forecast, economic growth, income, uk economy

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