VAT cuts to 'encourage consumer spending'

TARGETED VAT cuts to encourage consumer spending were called for by a business lobby group yesterday as its latest survey findings showed a dramatic fall in business confidence.

The Federation of Small Businesses (FSB) urged the government to follow the lead of a number of EU countries in cutting VAT in construction and tourism to 5 per cent for a year to give the economy a boost.

The latest FSB business confidence figures show that firms were less confident in the second quarter of 2011 than they were at the start of the year.

Although Scottish respondents to the survey had been among the most confident in the first quarter of the year with a balance of +12 per cent of firms expressing optimism, by the second quarter that had become a balance of -3.4 per cent.

Business confidence fell in all but two regions of the UK - the east of England and the East Midlands - which both possibly benefited from a resurgence in manufacturing in the previous quarter

John Walker, chairman of the FSB, 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.

"We now need the government's actions to match its rhetoric. It is tangible measures like VAT cuts that will actually help small firms to be able to grow their businesses and the economy."