Government set to cut VAT; time to throw a party?

24 November 2008

So we're all strapped into a rocketship called DOOM on a course set for hell, but at least we're being served tea and biscuits on the way.

With our belts so tight as to cause diaphragmatic rupturing*, the Government and retailers are playing tag-team wrestling with consumers in a bid to re-ignite the economy and tease us into parting with our cash. High street stores are already holding mid-season sales; Marks & Spencer lured in shoppers with their one-day 20% off event and Debenhams offered up to 25% off everything over three days.

Meanwhile the 1.5% cut in interest rates earlier this month means plenty of us will breathe easier in December when our monthly mortgage payments drop. And later today, chancellor Alistair Darling is expected to announce a reduction in VAT of 2.5%, from 17.5% to 15%.

While the newspapers seem to be doing backflips over the news, as if folk will throw street parties and indulge in a little free lovin', it's worth remembering that it won't do anything to cut the cost of essentials; food and children's clothes are already zero rated so carry no VAT at all,  as are books, newspapers and magazines. Household fuel and petrol are charged at a reduced rate of 5% meaning there'll be no reduction in their cost either. Balls.

You'll save some money on your television subscriptions, your landline and broadband costs, mobile phone bills and any other new goods you buy, but to make any real savings on your Christmas shopping you'll have to spend a decent wedge; a 2.5% reduction in VAT means a saving of just £25 in every £1,000. Don't break out the bunting just yet.

* entirely made-up ailment

TOPICS:   Economy   Christmas

3 comments

  • Rick H.
    I suspect tho that the reasoning behind it isn't necessarily to save the average punter money tho, the whole recession thing is a lot down to the public's perception of if they're feeling poorer or not - the big problem at the moment is all the news networks falling all over themselves to tell us we're all going to hell in a hand-basket employment and finance-wise, as they know bad news gets readers/viewers - you see the news telling you you're going to be poorer, you start saving more and spending less, which makes the whole situation worse, which makes people save even more, and so on until we end up in a chilling re-creation of the Mad Max films. So to get us out of this situation you need some feel-good news to counteract it all and make headlines - doesn't have to make a financial difference just so long as people perceive the situation to be getting better and loosen the grip on their purses - which would apparently be what's being attempted. Will it work? all depends on how the media portray it i guess. Does surprise me how one-sided the coverage of the economy is at the moment - the place i work for seems pretty stable - infact we've been hiring a few people recently. Stuff like that is never reported tho as it doesnt fit in with the media's agenda. The garden centre i went to at the weekend to buy an xmas tree and decorations was busier than i've ever seen it before, they couldn't take the money quick enough.
  • Kommunist
    He can't lower VAT further as it'll breach the EU directive Directive 2006/112/EC http://eur-lex.europa.eu/LexUriServ/LexUriServ.do?uri=OJ:L:2006:347:0001:0118:EN:PDF which defines the minimum level of VAT at 15%. If our Darling will try to push it further, all 27 countries must approve such a reduction.
  • TARG8
    Its only a saving of £22.13 as you have to divide by 1.175 and then times by 1.15 to make the savings.

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