SMEs 'to be hardest hit by VAT rise'

SMEs are likely to be the worst affected by the January VAT rise, according to an employment think-tank.

The Chartered Institute of Personnel and Development (CIPD) believe SMEs are also likely to bear the brunt of the Government's austerity measures - an irony, says the Institute's chief economics advisor Dr John Philpott, as it is these firms which are hoped will drive the recovery.

The comments came as the CIPD estimate that 1.6 million jobs would be lost due to the spending cuts, and the increase in VAT to 20%. It claims that the official figures for public sector job losses - estimated at some 490,000 - have been "understated", suggesting the real figure is 725,000.

Furthermore, it says, private sector losses will be greater than this, at 900,000 - a quarter of a million of which would be down squarely to the VAT rise.

Speaking on BBC Radio Four's Today programme, Dr Philpott said that the VAT rise would have "quite a considerable effect on the ability of consumers to spend and the willingness of consumers to spend - especially at a time when there are other downward forces on household income".

And the Government's measures taken together are set to hit smaller companies harder than the high street giants, according to Dr Philpott, who characterised the VAT hike as a "tax on jobs".

"Maybe some of the big players feel that they can absorb this in one way or another," he added.

"I suspect it will be smaller and medium-sized retailers - small and medium-sized businesses - who will actually feel the full brunt of this.

"And it's that part of the community which of course, both in terms of regulatory reform and also in terms of job creation, that the Government is banking a lot of its hopes on over the next few years."

Despite conceding that, over the medium-term, the UK's flexible labour market could see the private sector generating jobs again when demand returns to the economy, Dr Philpott added: "The key issue is what's going to happen in the next couple of years".

'Unreliable'

However, a member of the Treasury Select Committee hit out at the CIPD, accusing the Institute of basing its figures on "anecdote" rather than hard data, according to the Telegraph.

Attacking Dr Philpott, who was appearing before the committee in a review of the spending cuts, Tory deputy chairman Michael Fallon said: "You are less reliable than a dead octopus" - seemingly referring to Paul, the 'psychic' octopus who rose to fame by making predictions during the World Cup.

The CIPD also came under fire from the Institute of Directors, which said it was "dangerous" to make such predictions "on little more than a guess".

In a statement, the CIPD defended its estimates, saying they are based on "analysis of the experiences and detailed predictions" from its members.

IMAGE AP Photo/Arturo Rodriguez

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