Call to cut VAT amid rising IT business confidence

A temporary cut to Value Added Tax is necessary to boost the economy because business confidence among most owner-managers is falling, in spite of growing optimism in the IT sector.

In an appeal to ministers, ‘the voice of small businesses’ said a temporary cut in VAT - from 20 per cent to 5 per cent – would drive consumer spending and boost overall job creation. 

The Federation of Small Businesses added that neither of these objective has been achieved by the state so far, but said they could be if the lower VAT rate applied on tourism and construction.

Evidence put forward by the FSB, based on activity in other EU countries, was said to show than any lost VAT revenue would be compensated by the extra tax on additional demand and jobs in the sectors.

In the UK, FSB members facing the tourism and constriction markets were significantly less confident in the second quarter of 2011, as were 11 other sectors, than at the start of the year.

Pressing the case for these firms to pay VAT at 5 per cent , the federation said its index of 18 sectors also found business confidence was “dramatically falling” in all but two regions of the UK (the east of England and the East Midlands).

Worryingly, it said, member reports of declining revenues rose in the three months to June – representing the biggest decline since April 2010, and expectations of quarterly turnover sunk to a new low.

Service industries were generally the exception, however. Personal services saw the biggest leap in confidence between April and June, followed by financial services – described by the FSB as “remarkably buoyant.”

Computing and IT-related businesses followed the growth pattern, with confidence among the sector’s owner-managers at least three times higher than it was at the start of the year.

With a second quarter index score of 19, up from 6 in January, technology-led businesses emerged as slightly less optimistic than manufacturers but more upbeat than at least a dozen other sectors, including (general) business services.