Page last updated at 15:14 GMT, Monday, 9 February 2009

VAT cut having 'no impact at all'

VAT sign
Small businesses say the VAT cut has had no impact on their trade

The vast majority of small businesses say the VAT cut announced by the government in November has failed to boost trade, according to a new poll.

The Federation of Small Businesses (FSB) found 97% of firms polled said the cut had made "no impact at all".

The Treasury said it was too early to tell if the cut had worked or not.

In a separate survey, the FSB found just 8% of respondents said their banks were making funds available to them via a recent government guarantee scheme.

"Government action to stimulate the economy is not working," said the FSB.

Government guarantees

The Enterprise Finance Guarantee Scheme (EFG), unveiled by the government last month, is meant to support 1.3bn of new loans - between 1,000 and 1m - to businesses with a turnover of up to 25m.

The government guarantees 75% of the loan, with the banks covering the remaining 25%.

The FSB poll said that only 8% of small businesses were getting access to funds via the EFG.

It also said that 53% of companies surveyed doubted the scheme would force the banks the start lending again.

"These startling figures show there is still more to be done by the government and the banks to ensure businesses can survive the economic climate," said John Wright at the FSB.

"The government must use its meetings with the banks to monitor the guarantee scheme and assess why loans are being refused," he added.

'Encouraging signs'

In last year's pre-Budget report, the government announced a temporary cut in the rate of VAT to 15% from 17.5% which is intended to last until 31 December 2009.

The Treasury said it was too early to tell whether the cut in the level of VAT had been a success or not.

A spokesman said the stimulus package announced in the pre-Budget report "would take time to feed through to the economy."

"We have already seen encouraging signs with the VAT cut contributing to the 1% fall in inflation in December, " he said.

"This, hand-in-hand with interest rate cuts, will continue to support businesses and families."

The FSB polled 5,000 companies on the impact of the VAT cut and 4,000 on the impact of the economic slowdown.

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