VAT should be reduced to 5 per cent for a one-year period in order to stimulate the tourism and construction sectors, according to the Federation of Small Businesses (FSB).

The business organisation has called on government to bring in "targeted and time-specific VAT cuts" in order to restore confidence and encourage growth in important areas.

It comes as new FSB figures revealed that confidence had decreased among UK businesses during the second quarter of 2011, when compared with the first quarter.

FSB national chair John Walker said: "We now need the government's actions to match its rhetoric, and it must finally deliver on actions in its growth strategy. We must see a cut in VAT to five per cent in the construction and tourism sectors to boost consumer demand.

"It is tangible measures like this that will actually help small businesses to be able to grow their businesses and grow the economy."