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SMEs say the VAT increase back to 17.5 per cent could harm prospects of a recovery.

Anthony Renton, owner of business service company Servitir, says: ‘In terms of buying stock it has resulted in a significant saving and has helped a lot of companies. To take this benefit away before we’ve reached a recovery is very disappointing.’

Chandra Sharma, owner of Cut Price Office Supplies, says: ‘Changing everything around again has been an inconvenience for us. We’ve been focusing on our sales so this was the last thing we wanted to think about. Overall, the process of having to lower prices then increase them again has been more of a hassle than a help.’

According to Nationwide, consumer confidence fell by five points in December compared to the previous month, raising fears that higher taxes could stall economic growth.

Martin Gahbauer, chief economist at the bank, says: ‘The looming VAT hike and other tax changes announced in the Pre-Budget report may have impacted on confidence in December, forcing people to review their expectations for the future. Although it is still early days, these lower expectations may foreshadow a more sluggish consumer outlook in 2010 as stimulus measures are withdrawn.’

Aidan Ruff, owner of wedding business The Ellingham Partnership, agrees: ‘Now that the economy seems to be more precarious than ever [the government] has kicked it in the teeth with the double whammy of increased VAT and changing the stamp duty threshold back down again. It would be nice if the people at Westminster actually spoke to small businesses about the real effects that their policies have in the world for once.’

VAT was increased from 15 per cent on January 1 2010.

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