Former Asda boss Allan Leighton has called on the Government to reverse the VAT rise to stimulate activity in the economy.

In an interview with Retail Week to coincide with the publication of his second book, Tough Calls, Leighton – who now chairs Peacocks and Pandora – said that while he supported the Coalition’s austerity programme, it was essential that it also took some positive action to breathe life back into the retail sector.

“We have a situation about how you get some stimulus to retail sales – I would put VAT back to where it was,” he said. “A VAT cut would be a positive stimulus, psychologically it would be a good thing.”

Leighton also said it was vital that the banks make it easier for smaller businesses to borrow money in order to stimulate the broader economy. “There has to be a way in which they can borrow money, not like before, but in a controlled way so they can invest which creates money and jobs and that creates disposable income.”

Leighton said consumers are changing the way they shop in response to them feeling less well off. “Middle Britain is really under the cosh and if a housewife has £30, £40, £50 to spend they spend their £30, £40, £50 and they don’t spend any more than that. Sales are now a way of reducing your inventory rather than increasing your cash sales.”

Both his current businesses face significant challenges, but while he refused to comment specifically on Peacocks’s refinancing efforts, he said the business would be well placed when the market returns, particularly because its stores are in unusual secondary locations. “I’m a great fan of Richard Kirk’s, they’re one of the best teams around. They’ve been around and they know what they’re up to.”

Meanwhile, despite its disastrous start to life as a quoted company, Leighton dismissed suggestions that Pandora’s charm bracelets were a fad, and said the problem is that the product had been allowed to become too expensive.

The book, Tough Calls – all the profits of which go to Breast Cancer Care – asks leading figures the toughest calls in their career.