Jane Norman in rescue talks with Sun and Better Capital

Private equity investors join negotiations to take over beleaguered fashion retailer

Jane Norman, the struggling fashion retailer, is in rescue talks with two new private-equity investors.

Sun Capital Partners is negotiating with Jane Norman's lenders – led by Royal Bank of Scotland – about buying the debt and taking over the troubled business, while Jon Moulton's private equity business, Better Capital, has also held talks.

Better Capital teamed up with the management team of fashion group Aurora over potentially funding a bid for the 200-store fashion retailer. The management team behind Oasis-owner Aurora, led by chief executive Mike Shearwood, has been interested in the business because there are similarities between Jane Norman and Aurora's existing businesses, including Oasis, Karen Millen and Coast.

PricewaterhouseCoopers was hired by Jane Norman's lenders last month to advise on its future.

The complex banking syndicate of 15 lenders took control of 80 per cent of Jane Norman shares and restructured its £136m debt in January 2009.

Department store chain Debenhams, which houses Jane Norman's concession business, has also been weighing up its options and has held talks with the lending syndicate.

Debenhams has a change of ownership and control clause for Jane Norman's concessions within its stores, and it has taken over struggling businesses before that have profitable concessions within its stores. It bought Principles and the footwear chain Faith out of administration. But Debenhams' willingness to buy other businesses out of administration depends on how much stock the business has to sell.

It is thought Sun Capital's interest in the business stems from another of its interests. Sun owns V&D, a Dutch department-store chain founded in 1887. It has 62 branches in the Netherlands and the Jane Norman brand has profitable concessions within these stores. If Sun was successful with its bid it would not need the Debenhams concession business. It could concentrate on Jane Norman's European outposts and its UK stores.

Jane Norman is in critical condition. It has running low on stock and has been asking some of its landlords for rent holidays or to pay rent weekly – after already asking for monthly rental payments earlier this year.

Its problems highlight the difficulties for consumer businesses on the high street. Retail sales in May tumbled by 1.4 per cent, according to the Office for National Statistics – much worse than predicted. The slide was the steepest since January 2010.

Ed Balls, the shadow Chancellor, used the bad retail sales news to promote his plea for a temporary cut in VAT. "By putting more money directly into people's pockets, it would be a boost for consumers," he said.

VAT, which is payable on most consumer goods, went up from 17.5 per cent to 20 per cent in January.

Mr Balls's view that the economy will fare better with a less aggressive approach to cutting the deficit is somewhat isolated. But he has said the economic evidence so far is pointing in his direction, arguing: "Looking at growth across the EU over the past six months compared to the previous six months, we have gone from the top end of the economic growth league table to fourth from bottom, with only Denmark, Greece and Portugal below us."

However, Lord Oakeshott, a former Treasury spokesman, disagrees, and in a column for Property Week on Friday, (see below), calls for targeted VAT cuts rather than Mr Balls's "irresponsible and indiscriminate £20bn VAT hand-out to everyone".

The peer wants a cut in VAT for the housing market and says this will only cost £2bn. A cut in tax for housing refurbishment, repairs and reconstruction, he adds, will help small businesses, boost jobs and reduce tax evasion.