The message from small businesses in the U.K. to the government is quite clear; the rise in VAT from 17.5% to 20% effective January 4 is a setback to their economic recovery.
John Walker, national chairman of the Federation of Small Businesses, stated that government is going to have to help if it expects small business owners to be part of the solution and aid in the overall recovery.
The FSB has made a couple of suggestions as to what could be done to lessen the VAT’s impact on small firms. They have urged an increase in the amount a business can make before it has to register for VAT, from the current £70,000 to £90,000, which they say would create many thousands of new jobs. They have also asked that the rate be returned to 17.5% as soon as the deficit has been reduced ‘significantly’.
A recent FSB survey indicates that nearly 3/4 of small and medium businesses owners expect the increase to have a negative impact on their growth and prosperity. Close to half of the respondents said they would have to raise prices, and a slightly lower percentage said they expected to lose customers and/or make fewer sales.
According to many economists, retail business will be hit hardest. Shops that lost out on sales because of the uncooperative weather just before and during the Christmas rush are already hurting. Many will not be offering the ‘normal’ post-Christmas sales that traditionally bring shoppers out in droves. They will have to put prices back up to try and offset losses, or cut purchasing for new inventory, or find other ways to save money.
So far Chancellor Osborne has given no indication that he plans to lower the VAT any time soon. In fact he has stated that is necessary, and the best alternative to other options that include higher income taxes.