Page last updated at 14:42 GMT, Sunday, 19 October 2008 15:42 UK

Tories urge VAT holiday for firms

George Osborne

Small businesses should be allowed to defer paying VAT for up to six months, say the Conservatives.

Shadow Chancellor George Osborne said many small businesses were struggling after having had overdrafts withdrawn or interest rates put up.

A VAT delay could prevent some companies from "going to the wall".

Business Secretary Lord Mandelson told the BBC he was concerned about banks changing loan arrangements to small businesses, then charging them for it.

He said he would concentrate on firms who had good long-term prospects but were facing short-term cash flow problems.

'Responsible government'

The Conservatives have already pledged to cut corporation tax if they were in power.

The party says allowing small and medium-sized businesses to defer VAT payments for six months - they would still have to pay interest on the deferred tax of 7.5% - would ease cash flow problems.

We've got to repair our economy by getting the public finances back in order
David Cameron

Mr Osborne said HM Revenue and Customs had an "increasingly aggressive reputation for driving small businesses over the edge with tax demands".

He said allowing businesses to defer VAT payments for six months was "the kind of thing a responsible government should do".

"Along with our plans for a freeze on council tax and a cut in small business tax, this is a measure that could be implemented to help cash flow and in some cases prevent companies from going to the wall," he said.

"It was right to rescue the banks, because everyone depends on them, but now we need to rescue the real economy and stop jobs being lost and families suffering unnecessarily."

'Contraction'

On Friday, Conservative leader David Cameron ended his truce with Gordon Brown over the economy, accusing the prime minister of "irresponsible" economic policies which had created an unsustainable boom.

It came as opinion polls suggested Mr Brown had closed the gap on the Conservatives in the opinion polls since since the global financial system went into meltdown.

Lord Mandelson urges banks to do more to help small businesses

In an article in the Observer on Sunday, Mr Cameron said that further plans to help families, homeowners and entrepreneurs would be laid out "in the coming months".

"In the short term, we've got to help families up and down the country with proposals to get them through the downturn," he said.

"In the long term, we've got to repair our economy by getting the public finances back in order."

Later Lord Mandelson told BBC One's Andrew Marr Show the government would look at the banks' attitude to giving loans to small and medium sized businesses "during this contraction".

"One of the things that concerned me, I must say, is that banks are not only suddenly and unilaterally changing the loan arrangements and conditions on which they are making finance available, but they are also charging the firms higher administrative costs for making those changes in their loan conditions. That is not good enough."

He said those banks in which government was taking a stake had a commitment to "broadly maintain the availability of finance" for the housing market and small and medium firms that was available in 2007.

"We have made clear what we expect and what the condition is for our investment in those banks."

With other banks, he said he and the chancellor would talk to chief executives about taking a more flexible approach about maintaining credit lines.




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