Cut small business taxes?

I am sure you are all as confused as I am over the current state of the UK economy.

On the one hand, we have David Blanchflower of the MPC stating that we are in recession already and need to cut interest rates now, and various commentators stating that we are about to crash. House prices continue to fall and manufacturing output is down.

On the other hand, the price of oil is finally coming down and this is being reflected in the forecourt prices and banks are cutting their mortgage rates. Retail sales are improving and the IMF has lifted its growth forecast for the UK economy.

To be honest with you, I doubt if any economist out there knows what on earth will happen over the next six months. Certainly, if oil continues to drop (and that will depend on the speculators) we could have a very shallow recession.

On the other hand, if consumer and business confidence fails to recover, then we could be in for a very depressed two years of slow if not negative growth within the UK economy.

Interestingly, one of the key tax reforms put into place by Gordon Brown during the last two years has been an increase in the corporation tax rate for small business from 20 per cent to 22 per cent by April 2009 (whilst large firms have seen their rates drop).

Delaying or reversing that tax rise, a rise which many commentators have ignored, could bring enormous confidence to the sector which employs the majority of employees in the UK and accounts for a significant proportion of GDP.

It could signal that the Government is listening to the small firms that are being hit the hardest and could begin to turn the corner for the UK economy which, as many politicians still fail to understand, is driven by the small firm sector.

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