A targeted VAT cut and a National Insurance Contributions (NICs) holiday must be introduced for small firms as small business confidence fell due to the pressure of weak demand and rising costs, according to the Federation of Small Businesses (FSB) ‘Voice of Small Business’ Index.

The Index fell by -9.6% in the third quarter as more businesses lost confidence in the economy and unemployment reached 2.57 million with youth unemployment reaching almost 1 million.

The FSB has long called for the current NICs holiday to be extended to existing businesses across the UK that have fewer than four employees and that employ up to three more staff.

One in 10 businesses (11%) said that extending the NICs holiday would be an incentive to take on staff, according to recent FSB research.

Consumer demand is also a large barrier to economic growth and so the FSB has called for a targeted and time specific VAT cut to encourage people to spend in these areas.

John Walker, National Chairman, Federation of Small Businesses, said:

“As businesses come to terms with the double whammy of falling revenues and rising costs, it is no wonder that they’re losing confidence, and unfortunately, as their overheads increase one way to control it is to lay off staff.

“It is the first time since we started the Index that we have seen more people believe that they’re going to lay off staff than take them on. This has to show the Government that a more robust plan for growth is needed.”