It has spoken out as its latest research figures show that business confidence has fallen dramatically.
The FSB is calling on ministers to follow the lead of other EU countries and cut VAT in the construction and tourism sectors to 5% for a year to give the economy a real boost.
Consumer demand is a large barrier to economic growth, so a VAT cut would encourage people to spend in these areas, it says.
FSB figures show that businesses were less confident in the second quarter of 2011 than they were at the start of the year, as the FSB Voice of Small Business Index fell by 6.4 points in the first quarter from +6.7 to +0.3.
Of the 18 sectors monitored by the Index, 13 are not showing signs of business confidence, with five sectors falling from a positive to a negative reading. Most notably, firms that sell or repair motor vehicles are the least confident.
The Index – which measures the confidence of small businesses across the UK – has been a reliable predictor for the path of economic growth since it began last year. The FSB is worried that the government’s growth plan is failing and the promises to help small businesses grow have yet to materialise.
Evidence from other EU countries shows that any lost revenue to the Exchequer by making VAT cuts will be met by earnings from additional demand, jobs and the wider economic activity.
North Bucks branch chairman Allan Banks said: “It is tangible measures like this that will actually help small businesses to grow their businesses and the economy. We now need the government’s actions to match its rhetoric, and it must finally deliver on actions in its growth strategy.”
FSB Luton & South Beds chairman Carole Hegley added: “The economy is still in a fragile state and these figures clearly show that the government’s growth strategy is 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, so that the recovery can get back on track.”
