Will the VAT reduction make any difference at all?

I have had to adjust the VAT codes and prices on my Epos systems (electronic point of sales – otherwise known as tills) and online shop this week. The reason? The government think that they can eradicate the credit crunch by reducing VAT by 2.5%, for 13 months.

Am i missing something here? Surely any school kid can see that this will never work in a million years. Firstly 2.5% is not nearly enough to restore confidence, energy costs are still rising for many of us and
that will more than offset the VAT saving. Secondly there is nothing to force companies to pass on the savings, and for the millions small of retail companies the cost and time required to relabel their entire product range it simply doesn’t make sense. Especially when you consider the extra cost of having to deal with additional requirements for small change, and the physiological factor that people like round prices. Then there is the cost factor, if government has less money in its pockets, then its going to be spending less and that is bad for businesses in the Uk, and not only will this money have to be repaid but there is also the interest.

I can see that changing VAT may seem the simplest way to have an effect on people that are spending, but surely it will have an inflationary effect if some companies put up their prices to keep prices on the shelves the same as before the vat change. Surely a change to income tax would have a more controllable and noticeable effect?

I seem to remember during the recession of the early 90’s that there were campaigns to buy british, to ensure that what spending did take place was having an effect at home. This reduction in VAT will benefit the cheaper foreign manufacturers as much if not more that british businesses, and british families.

As i type this up sitting on my sofa at home, the news on tv is talking about increasing numbers of housing repocessions, increased redundancies more businesses going bust etc, etc, etc. I can’t help but think that a 2.5% reduction in VAT is like trying to stop the recent floods with a seaside bucket and spade.

Will the VAT reduction make any difference at all?

3 thoughts on “Will the VAT reduction make any difference at all?

  1. As the comment above suggests, this week has seen a bit of a VAT lottery, we are seeing some places reduce prices, others are keeping thier old pricing structures and a few places are reducing some but not all retail prices.
    I guess that a couple of thing i did not mention in the original article are that its hard for retailers to know if their suppliers will reduce their retail prices or bumb up costs, so there’s a danger that they fall into a loss trap if they pass on the benefits too early, also when it comes to the internet there is a potential for UK companies to take advantage of increased international sales on higher priced items.
    In real terms, if the whole benefit is being passed on this means for every £400 people spend they are saving £10.

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