The Federations says that the call for reversal in the 20 per cent VAT rate is "wildly unrealistic".

Politicians should stop playing politics with the recovery and come up with a credible plan for growth to support the UK's small businesses, is the message that the Federation of Small Businesses (FSB) will take to the Labour Party Conference.

Labour, through Shadow Chancellor Ed Balls MP, has been actively calling for a reversal in the 20 per cent VAT rate. However, the FSB believes that this is wildly unrealistic and could cause more harm than good to the already fragile recovery.

Limited and temporary VAT cut

Instead the FSB believes the UK should follow the lead of other EU countries and introduce a limited and temporary VAT cut in the construction and tourism sectors for one year.

Cutting VAT to five per cent in these strategically important sectors could kick start growth, lead to job creation and increase revenue to the Treasury, as well as widen the tax base, says the FSB.

More growth policies

The Federation is also calling for Labour to have more policies for growth up its sleeve than just the VAT cut and for the political posturing over the size and speed of the cuts to make way for real talks on how to rebuild and strengthen the recovery.

Analysis of Labour's plan to cut the deficit in its election manifesto shows that it would have made a similar level of cuts to Government spending – around £14 billion to the Coalition's £16.5 billion in 2011-12.

John Walker, National Chairman, Federation of Small Businesses, said: "The FSB is concerned that without a more aggressive and proactive approach to promoting growth that the economy will stagnate and decline. While we agree with Labour that something needs to be done, we believe that a full reversal of the VAT rise is not the answer.

"The political sparring between parties about the cuts is not the answer and so tangible policies which deliver growth must be put in place to boost growth, jobs and UK plc."