The UK's Federation of Small Businesses (FSB) has urged the government to implement temporary VAT cuts for certain sectors, in order to prevent further economic stagnation.

Releasing the results of its latest 'Voice of Small Business' Index earlier this week, the FSB revealed that more of the small business owners questioned had reported falling revenues in the second quarter of 2011 than in the previous three months, and that expectations for Q3 2011 were not high amongst those polled.

A small bright spot came in the form of news that the number of businesses laying off employees was down on the previous quarter; however, more small businesses are reducing staff numbers that are hiring new workers, the Federation went on to reveal.

In order to give SMEs and other businesses a boost, and thereby stimulate the economy, the FSB proposed a "targeted and temporary" VAT cut in the construction and tourism sectors (which are two of the sectors struggling the most in the current economic climate), to 5%, in line with similar reductions put in place in other EU member states.

The FSB explained that:

"By targeting VAT cuts in construction and tourism, the FSB believes that small firms will be able to drive job creation and boost consumer spending – something the Government's growth plan has so far failed to do."

"Evidence from other EU countries shows that any lost revenue to the Exchequer by making VAT cuts will be met by earnings from additional demand, jobs and the wider economic activity."

John Walker, the Federation's National Chairman, observed that:

"We now need the Government's actions to match its rhetoric, and it must finally deliver on actions in its growth strategy. We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand. It is tangible measures like this that will actually help small businesses to be able to grow their businesses and grow the economy."