The Federation of Small Businesses (FSB) has called on the government to help the UK's small companies by slashing VAT.
The group believes that "targeted and time specific VAT cuts" would help restore growth in key sectors such as construction and tourism. If VAT was dropped to 5 per cent for one year, the FSB believes this would have a major impact on consumer spending.
Data from the FSB's Voice of Small Business' Index shows that confidence among small businesses fell in the second quarter of 2011.
The government has argued that lowering VAT would negatively affect the economy, but the FSB says money lost through taxation would be met by earnings from additional demand, jobs and the wider economic activity.
FSB chairman John Walker said: "We now need the Government's actions to match its rhetoric, and it must finally deliver on actions in its growth strategy. We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.
"It is tangible measures like this that will actually help small businesses to be able to grow their businesses and grow the economy."
