By Marcus Leach
A targeted VAT cut and a National Insurance Contributions (NICs) holiday must be introduced for small firms as small business confidence fell to -9.3 due to the pressure of weak demand and rising costs, according to the Federation of Small Businesses (FSB) ‘Voice of Small Business' Index.
The Index — which has been a good predictor of the path GDP will take — fell by 9.6 points from +0.3 to -9.3 in the third quarter as more businesses lost confidence in the economy. This news comes just weeks after GDP was revised downwards to 0.1 per cent in the second quarter and ahead of third quarter figures due next week.
And, in more gloomy news, figures last week showed unemployment reached 2.57 million and youth unemployment almost reach the one million barrier. A balance of six per cent more businesses surveyed by the FSB think that they will lay people off in the coming three months, pointing to a further increase in unemployment by the end of the year.
The FSB has long called for the current NICs holiday to be extended to existing businesses across the UK that have fewer than four employees and that employ up to the three more staff.
One in 10 businesses (11%) said that extending the NICs holiday would be an incentive to take on staff, according to recent FSB research. The current NICs holiday is only open to new start ups and has not had the take-up that the Government expected it to, with only 7,000 businesses using it. By extending it, the Government has the opportunity to put more people in a job which in turn would boost the tax base and money to the treasury.
Consumer demand is also a large barrier to economic growth and so the FSB has called for a targeted and time specific VAT cut to encourage people to spend in these areas. The FSB is urging the Government to follow the lead of other EU countries and cut VAT in the construction and tourism sectors to five per cent for a year to help give the economy a real boost.
In addition, a NICs holiday would also offset increasing cost pressures on firms. More than three quarters of the firms surveyed said that their costs had increased in the quarter, mainly due to rising commodity prices as more than half of respondents (57%) cite rising energy costs, and 49 per cent increase in the cost of raw materials as the reason.
"As businesses come to terms with the double whammy of falling revenues and rising costs, it is no wonder that they're losing confidence, and unfortunately, as their overheads increase one way to control it is to lay off staff," John Walker, National Chairman, Federation of Small Businesses, said.
"It is the first time since we started the Index that we have seen more people believe that they're going to lay off staff than take them on. This has to show the Government that a more robust plan for growth is needed.
"Moreover, this is the first time that we have seen confidence in all regions of the UK in negative territory. We urge the Chancellor to look closely at our NICs holiday proposals and bring this forward in his Autumn Statement. We fear that without it, the recovery will falter once more."
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