Chancellor confirms 2.5% VAT cut
Presenting the pre-Budget report in the House of Commons this afternoon, Darling said that he will cut VAT from 17.5 per cent to 15 per cent, with effect from December 1.
VAT will continue at this rate for 13 months before returning to the previous level in 2010. Darling said that by that point, the recovery will have begun.
Reducing VAT by 2.5 per cent will cost£12.5 billion a year. Alcohol, tobacco and petrol taxes will be raised to offset the VAT cut.
He urged retailers to pass on the cut “as soon as they can” to stimulate growth.
The British Retail Consortium has welcomed the news and said its members will pass on the cut. It added, however, that it was concerned that the change is only temporary.
British Retail Consortium director general Stephen Robertson said of the pre-Budget report: “With inflation under control, the Chancellor is right to seek to help customers and put the economy back on course to stability. I hope this complex package of measures is economically rather than politically driven.”
He added that the VAT reduction was “a modest but welcome boost for hard-pressed households”.
“It must be just one of a range of reviving measures including cuts in income tax and interest rates,” he said. “Getting the economy up and running is vital and, in this fiercely competitive climate, our members will certainly be passing this on.”
He added that the change has fallen at the busiest time of the year for retailers to implement, but they will “cope”.
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Readers' comments (8)
Ian Middleton | 24-Nov-2008 4:34 pm
Hmmm..increasing taxes on petrol, that's going to be popular!
A reduction in employers NI would be welcome as would be a cut or freeze on business rates. Otherwise I wouldn't be surprised if a number of retailers take the VAT cut and run. If they're not going to get any other financial help from the chancellor who could blame them?
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Sarah Decent | 24-Nov-2008 4:48 pm
As a small retailer who is currently paying VAT via the flat rate scheme I believe that passing on the 2.5% cut in VAT to my customers will simply mean that this is effectively funded from my pocket - unless of course the flat rate is also reduced. I realise that after December 1 I will benefit from paying lower VAT to my suppliers, but even then I suspect I will be worse off.
In summary unless the Inland Revenue reduces the Flat rate of VAT payable, small retailers will in many cases be worse off if they pass on the savings to their customers, or risk looking greedy if they don't.
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Anonymous | 24-Nov-2008 5:06 pm
An increase in tax on petrol and alcohol at Christmas.
Great idea !
lucky that no-one drives a long way to visit relatives and drinks copious amounts of alcohol at Christmas !!
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Liz Steer | 24-Nov-2008 5:25 pm
The Chancellor has clearly never worked in the retail world during December. Although this sounds like a good idea to stimulate the economy - has the government not realised what the additional cost burden and logisitics nightmare will be to reprice goods during peak trading. This will surely mean that most companies cannot afford to pass the rate cut on until beyond the January sales.
Liz Steer Steer Consulting
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Tricia Fox | 24-Nov-2008 5:36 pm
If the Chancellor wanted to demonstrate his incompetency in his role, he has undoubtedly made it happen with this seemingly ridiculous change 5 weeks before Christmas and at retailers' busiest time of year. For those retailers with multi-channel logistics, the pruice changes alone will be so cost prohibitive (re-printing and system re-engineering) that the consumer is unlikely ever to see the benefit of this change. People who understand to little about business and the economy should not be allowed to hold positions of power.
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Anonymous | 24-Nov-2008 7:55 pm
Is Darling mad ??
2.5% cut is rubbish, and will stimulate nothing.
Ofsetting it by raising Alcohol, fuel and tobacco taxes is just opportunism - esp. as fuel has crashed in the lst few weeks. Will these be lowered back in 2010 when the VAT cut is reversed - bet you not. The stealth kings are back in town.
Working in retial, price changes on almost everything will be a nightware, only to reverse in 2010. XMAS 2008, heads in the trough and spend, spend, spend and don;t worry about it - next year will be fabulabourous.
Would have been better abolishing 8% VAT on domestic fuel, utting some real money back in the pockets of Joe Consumer.
And you though the Tories were incompetant....
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Anonymous | 24-Nov-2008 11:04 pm
I believe that the fuel and alcohol excise duty rises will merely offset the VAT reductions. Therefore the consumer will see little or no price change. So no big deal there before everyone starts bleating. However, the logistics of changing prices on IT systems and, more importantly, on products currently in stores is going to make the VAT reduction a boost to retailers' margins at least until January - unless they can implement a 2.13% price reduction at the till point! Is anyone going to re-price £10 products to £9.79, or £50 products to £48.94? This seems crazy. I think the money should have been put directly into people's pockets by increasing the tax threshold again. But of course it takes six months for the government and payroll depts to be able to sort that out while retailers are expected to be able to change everything in a week!
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John Hobson | 25-Nov-2008 4:29 am
Well I can't see many retailers going round reducing price tags from 9.99 to 9.77 :-)
Yes, OK, I know that there are other ways they can do this like having as 2.1% off POS markdown, or by reducing certain items by more whilst leaving other at the original price.
It DOES provide a means by which retailers can reduce prices slightly with no immediate cost to themselves, so it may stimulate a bit of demand - but only from those who don't drive cars or drink alcohol presumably :-)
"The pre-Budget report also contained announcements of a duty rise on alcohol, tobacco and petrol duty, to cancel out the effect of the VAT reduction. " - BBC
Yes - that'll be about right won't it?
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