UK VAT hike branded a failure

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Claims that the 2.5% cut in VAT helped boost retail sales in the UK have been rubbished by Verdict Consulting

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11 June 2009 | 0

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Claims that the 2.5% cut in VAT helped boost retail sales in the UK have been rubbished by financial consultants. Extensive discounting, not the VAT cut, accounts for the rise in sales volume growth, from 1.6% in November 2008 to 2.6% in December 2008, claims Verdict Consulting.

The Centre for Economics and Business Research (CEBR) found in the first three months of the lower rate, retailers’ turnover was £2.1 billion (€2.36 billion) higher than it would otherwise have been.

However, Verdict Consulting said CEBR when comparing 2007 and 2008 sales, “failed to appreciate the strength of November 2007 and the weakness of December 2007 which accounts, in large part, for the comparatively weak performance of November 2008 and the comparatively strong performance of December 2008.”

CEBR has recommended a return to the previous rate of 17.5% planned for January 2010, be delayed for a further six months. But Neil Saunders, consulting director at Verdict Consulting believes this would prove unwise.

He told ShelfLife: “Economically it would be very difficult to justify. It is costing the government a huge amount of money and is having a very small impact on sales.”

Saunders believes there’s “a real risk” the UK government may have to increase VAT above its original level to balance public finances. This, he says, would prove damaging, although a return to 17.5% VAT would place consumers on an “even keel.”

 

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