CONFIDENCE among small firms has fallen "dramatically", according to the Federation of Small Businesses (FSB).
It is calling on the Government to look again at its strategy for growth and look at targeted VAT cuts to help the worst hit sectors.
It is particularly urging the Government to follow the lead of other EU countries and cut VAT in the construction and tourism sectors to 5% for a year. The FSB says such a move would encourage people to spend.
The demand comes as the FSB’s quarterly Voice of Small Business index showed a drop in confidence from the first to the second quarter of the year.
It plummeted from +6.7 in the first three months of the year to just +0.3 in the second. The index monitors 18 business sectors, five of which fell from a positive into a negative rating.
The least confident were businesses selling or repairing cars. Their confidence dropped by 65 points to -45.
Meanwhile, confidence among hotels, restaurants and bars has fallen by nine to +4 in the first quarter, while construction confidence increased by just one point to +3.
The FSB said the results made it “extremely worried” that the Government’s growth plan is failing and asked what had happened to promises to help small businesses grow.
It is calling for targeted VAT reductions in construction and tourism, which it believes will drive job creation and boost consumer spending.
The FSB pointed to evidence from other European countries where such a policy had been introduced, where potential losses to the Exchequer were offset by earnings from additional demand, jobs and the wider economic benefits.
FSB chairman John Walker said: “The economy is still in a fragile state and these figures clearly show that the Government’s growth strategy is just not working.
“In an economy characterised by high unemployment and muted demand, more needs to be done to encourage businesses to take on staff and grow their business so that the recovery can really get back on track.
“Since the start of 2010, the FSB Index has proved to be a good barometer of the path that economic growth will take, so the news that it has fallen back to almost zero paints a very worrying picture for GDP.
“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 5% 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.”