FSB: reduce VAT once the deficit is cut

The Federation of Small Businesses (FSB) has called for VAT to return to 17.5% once the deficit is "significantly reduced".

In December, Chancellor George Osborne told the Spectator that the increase from 17.5% to 20% was not temporary.

"It can't be," he said. "We are talking about a totally different scale of revenue and the VAT rise is a structural change to the tax system to deal with a structural deficit."

But FSB national chairman John Walker urged action.

"Small businesses had a tough time in 2010 and the year ahead looks set to be just as challenging," Walker said.

"The end of last year should have been a very busy time as people made purchases before the VAT increase, but the busy Christmas period was hampered by heavy snowfall and severe weather.

"FSB research shows that almost half of respondents are going to have to increase prices as a result and 45% think it's going to decrease their turnover - neither of which will help small firms take on more staff.

"If the Government truly believes that the private sector is going to strengthen the recovery we need to see action.

"The Chancellor has said that this rise is here to stay as it a change to the tax system to deal with the structural deficit.

"The FSB is urging the Chancellor to review the increase when the deficit has been significantly reduced and to return it to 17.5%. Without this small firms will struggle to bounce back as the spending cuts start to bite."

The British Beer & Pub Association has said the VAT rise will add 6p on a pint of beer, and called for a lower rate for the hospitality trade.