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VAT increase could be 'detrimental'

As many as one in three firms are worried that the planned increase in VAT could have an adverse effect on their business, a new survey has claimed.

A study of the reaction of 500 businesses to measures introduced in the emergency Budget, carried out by YouGov research, found that 30 per cent of respondents believe that the rise in VAT from 17.5 per cent to 20 per cent, planned for January 2011, will have a detrimental impact.

As a result, 19 per cent of those expressing a concern intend to freeze or reduce employee pay.

A similar proportion (31 per cent) do not think that the Budget's national insurance announcement, which will see the threshold at which employers start to pay NI climb by £21 a week, will encourage them to take on more staff.

John Walker, the national chairman of the Federation of Small Businesses (FSB), said: "This research highlights the feelings of small firms about the potential problems they face come the New Year. For many, the increase in VAT to 20 per cent in January 2011 could put businesses at serious risk.  

"The increase will especially hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost.

"Even the move to decrease VAT by the previous administration cost small businesses up to £1,500 in bureaucracy alone."