Spending Cuts

David Cameron says the government has a "credible plan" for restoring economic confidence – let’s hope so!

The government's spending cuts are necessary and not driven by ideological zeal, Prime Minister David Cameron has insisted in his new year message. He said the economy was now out of the danger zone, but warned of much "heavy lifting" ahead in 2011. In his message, Mr Cameron said: "We have a credible plan for restoring confidence in our economy, but we have to see it through. A lot of the heavy lifting will happen in 2011.

The cuts we have all witnessed recently have been tough and I think we will continue to see the harsh reality of them over the coming months. In addition, the affect of the VAT rise yesterday from 17.7% to 20% will hit all of our pockets.

As a small VAT-registered business, I certainly understand the implications this rate rise will have on the financial security of my business. Small businesses have been hit particularly hard during the downturn and many have struggled to keep on an even keel. Like households, it is the hidden costs that will hit the small businesses the most – the increased VAT on our utilities i.e. telephone costs and supplies of electricity and heating. It is also inevitable that some businesses will be forced to increase costs due to the recent rise in fuel costs which have been hit not only by the VAT rise but also the added duty tax – as many of our goods rely on the transportation system, the operating costs of many companies continue to rise whilst the take-up of services and goods continue to plateau or in some cases decrease.

Whilst I do accept that the cuts and VAT rise is necessary as part of the Government’s plans to tackle the deficit, I, like many other small business owners, realise that hard-hitting challenges are ahead for this year and the first quarter of the year may well determine just how tough things are going to be.