By Maximilian Clarke

A ‘targeted VAT cut’ along with National Insurance Contributions (NICs) holiday must be implemented in order to restore rock-bottom business confidence, a small business organisation has said.

The Federation of Small Businesses’ (FSB) ‘Voice of Small Business’ index plummeted from +0.3 to -9.3 over the quarter amidst a worsening global economic climate and low domestic demand.

"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,” commented John Walker, National Chairman of the FSB.

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.

"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,” continued Walker. “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."

The solution, insist the Federation, is to cut VAT in order to improve a business’ cash flow, and to introduce the NIC holiday in order to reduce barriers to hiring.

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.

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