VAT cut 'is successful'
Apr 14 2009
The government's reduction in value-added tax (VAT) is proving to be successful, despite criticism, according to research from a leading thinktank.
A study by the Centre for Economics and Business Research (CEBR) claims that retail figures for the three months after the cut show it is having the desired effect.
The group reports that the temporary 2.5 per cent reduction on December 1st resulted in a £2.1 billion increase in retail turnover and calls for it to be extended for another six months.
Figures in the report reveal that annual growth in retail sales jumped from 1.6 per cent in November to 2.6 per cent in December and 3.2 per cent in January, before showing a slight decline to three per cent in February.
Douglas McWilliams, chief executive of the CEBR, adds: 'The figures are clear; the VAT cut is working. The rise in retail growth is even more remarkable given the economic context over this period.'
However, a survey from the Federation of Small Businesses earlier this year claimed that 97 per cent of companies experienced 'no impact on their trade at all' following the cut.
In addition, the British Retail Consortium claims that it cost the sector around £90 million to make the changes last December, with a similar-sized bill due when the tax is returned to 17.5 per cent at the end of 2009.
Comment by Diana Flier
Friday 17th April 2009Love it or hate it, Alistair Darling’s notorious VAT cut has provoked a global response from businesses of all sizes. This measure that was designed to boost economic activity was initially described as a nightmare for small businesses, and is now being described as a success by the CEBR. However, in a recent Intuit survey, 56% of small business owners stated that none of the measures in the Pre-Budget Report had benefitted them. In the long term there may be benefits to the VAT reduction, however, in the short term it has been painful for businesses to implement the changes. For this reason, the small business budget wish list included an extension of the VAT reduction, and the chancellor must carefully consider this if small businesses are to gain the long term benefits of their short term hardship. Diana Flier, Compliance Analyst Intuit UK www.smallbizmatters.co.uk
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