'Think small first', chancellor told for Budget

The Government has been urged to "think small first" by placing SMEs at the heart of next week's 'emergency Budget'.

Although the Federation of Small Businesses (FSB) acknowledged that we are in "emergency times", and that "difficult decisions have to be made to tackle the debt", it nevertheless pleaded for these inevitable sacrifices to be mixed with measures that would "inspire confidence in the future".

The federation's call came in a letter to Chancellor of the Exchequer George Osborne, which included a request for the Government to provide ways for businesses to "innovate, grow and employ".

According to the group, these could include a 'sunset clause' - a provision for a definite end date - for a widely-anticipated anticipated VAT increase, allowing small firms to plan for the reduction when it comes.

The FSB is highlighting its position that small businesses do not have the "financial buffer" of larger organisations, meaning that they struggle to absorb increases in VAT. A sunset clause, it says, would send the message that despite short-term increases, the Government is committed to low taxes.

Such a clause has already been promised in the coalition's programme for government, alongside a "wholesale review of all small business taxation".

While the FSB acknowledged that more than 90% of its members accept that the Government needs to cut the budget deficit, the group says that there should be no hike in employers' National Insurance Contributions (NICs) and in PAYE taxes. It went as far as calling for the Government to cut NICs for existing firms in addition to new businesses, in order to stimulate job creation.

Meanwhile the FSB is also opposing any increase in Capital Gains Tax aimed at businesses or entrepreneurs, arguing that such action would reduce long-term investment in firms.

National chairman John Walker renewed the call for improved credit access for small firms, while adding that the chancellor must use next week's announcement "to set out his pro-business credentials".

"Private-sector growth is the best method of cutting the deficit, keeping taxes low and absorbing the staff that will lose jobs in this round of budget cuts," he added.

"By cutting employers' NICs payments for established companies that want to take on staff, the Government would benefit from the creation of new jobs and the additional revenue from income tax and employees' NICs contributions that would be paid, while freeing up business cash-flow, enabling it to grow."

New verdict - old problem

The news follows Monday's verdict by the newly-created Office of Budget Responsibility (OBR) on the Government's fiscal position, which downgraded Labour's prediction about the expansion of the economy in 2011. According to the report, the economy is set to grow by 2.6% next year - down from the 3-3.5% Labour predicted in its last Budget.

However, the OBR - tasked with providing an independent take on state of the nation's finances - said that both the Government's deficit and its overall debt from borrowing are slightly lower than previously thought.

CBI director-general Richard Lambert said that the report "injects a welcome dose of credibility and transparency" into the fiscal and growth projections, noting that the picture it paints is now in line with the body's own predictions.

However, he warned that the figures suggest the recovery "will be slow and protracted", and called for "radical public service reform and spending restraint" instead of tax rises.

Despite this, the British Chambers of Commerce warned that the OBR report was "more realistic, but still ambitious".

IMAGE Lewis Whyld/PA Wire

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