Tuesday, 14 April 2009

Lower VAT rate has boosted consumer spending

The Centre for Economics and Business Research (CEBR), an economics consultancy, has reported that the VAT standard rate cut of 17.5% to 15% in December 2008 has caused more consumer spending, with some £2.1bn being generated in extra sales. The consultants have advised that increasing the rate back to 17.5%, as has been planned for January 2010, would, “cause a consumer downturn and choke the fragile economic recovery”. They have therefore recommended that the reduced VAT rate should be sustained until “July 2010, when the economy will be stronger” or even reduced a further 2.5% to 12.5%, as they had previously recommended last year.

However, those in opposition to the reduced VAT rate have argued that the cut is too small to make any difference to consumers' spending habits during the recession. This has been supported by a poll by the FSB (Federation of Small Businesses) in February, which found that 97% of firms polled said the VAT cut had had "no impact at all."

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