Small biz demands some relief from Darling

Alistair Darling's much-leaked cut in VAT from 17.5 per cent to 15 per cent has been welcomed by the small business community - although there are worries about how it will be implemented.

Darling is expected to unveil the plan this afternoon in a pre-budget statement, along with a raft of other measures to help individuals and businesses weather the recession that practically everyone accepts we are now in. Support for small business is expected to be at the heart of the program.

Stephen Alambritis, head of public affairs at the Federation of Small Businesses, said: "Assuming the cut goes through we hope consumers will take it seriously - 46 per cent of businesses say trade is down and this could help save vital Christmas trading."

"The downside of course is hassle for businesses changing cash tills and other business processes. The other big question is when it starts - quicker is better for consumers but means more work for businesses. There are various rumours about when it will start - 1 December would be good for Christmas but if it doesn't happen until February then companies would have more time to prepare."

The other option would be to increase the number of items treated as VAT-free or taxed at a lower rate.

The FSB is also asking the Chancellor to set aside £1bn for a "Small Business Survival Fund". One in three small firms is unable to get finance and has seen existing loan arrangements get more expensive - the situation is so bad that a third of firms are considering closing if conditions remain the same. The fund would help both existing businesses and start-ups.

The FSB notes that £1bn equates to just 0.2 per cent of money used to bail out failing banks.

Unusually, some Budget proposals seem to have been widely leaked. Apart from the VAT cut there is also expected to be a deferred tax hike for people earning more than £150,000 a year to 45 per cent to help pay for government borrowing.

The government is trumpeting its support of small businesses - about time when you consider that it was big businesses such as banks which largely landed us in the current financial mess.

Lord Mandelson, who recently returned to government to take over at BERR, last week told an audience of business leaders at an awards event that it was small businesses, in particular engineering and manufacturers, that the government now wanted to help.

He said government help should be designed to "get money to real engineering not financial engineering - we can't depend on that anymore."

"Small businesses drive our economy," he said, with manufacturing accounting for half the UK's exports. "That is the value of real engineering and high value manufacturing."

This sounds remarkably old Labour - all the more so now Darling is planning tax rises for the highest earners. But it will leave a sour taste in the mouths of many business folk, after years of government policy that seemed to favour finance over manufacturing, from an unwillingness to rein in an over-valued pound to the decision to scrap the Home Computer Initiative.

Darling will deliver his pre-Budget report at 3.30pm in the House of Commons. ®