Federation: VAT hike is a hammer blow to firms

An FSB survey showed that three quarters of the region’s small businesses expect the VAT hike to have a negative impact on their business.

The organisation reiterated its call for the Government to increase the threshold at which small businesses pay VAT from £70,000 to £90,000, which has the potential to create up to 35,000 jobs.

The FSB is also urging Chancellor George Osborne to return the rate of VAT to 17.5 per cent once the national deficit has been significantly reduced.

However, Mr Osborne has said that the increase to a 20 per cent rate will remain in place for the foreseeable future to deal with the structural deficit.

The FSB survey showed that 71 per cent of the 1,600 respondents expect the rise to hit their business. A further 52 per cent expect to increase prices, and 36 per cent expect a loss of customers as a result.

Simon Hanson, North-East policy manager at the FSB, said: “Our research shows that the rise in VAT for small businesses in the North-East will be a hammer blow and the worst possible start to the new year.

“Almost half of respondents are going to have to increase prices as a result and 45 per cent think it’s going to decrease their turnover, neither of which will help small firms take on more staff.

“Given the challenges that the North-East will face this year, small businesses need to be supported to help drive the recovery of the economy. If the Government truly believes that the private sector is going to strengthen the recovery, we need to see action.

“This can be demonstrated by raising the VAT threshold to £90,000. Without this small firms will struggle to bounce back as the spending cuts start to bite.”

Small firms told the FSB that they will struggle to absorb the VAT increase and will pass the full cost on to their customers, reduce stock levels or find cost savings elsewhere.