Thursday, 27 November 2008

I don't think the VAT cut will work

Roll Up! Roll Up! Starting Monday for the next 13 months a massive national sale! Great 2% saving on most of our lines! Now I don't have a heavy consuming lifestyle so perhaps I'm not a good person to make this judgement BUT I just cannot see a significant amount of extra spending by the Great British Public as a result of the VAT reduction. The 2.5% drop equates to approximately 2% of the total selling price and for the life of me I just can't see that igniting a spending spree, I really can't. Retailers might up their sales by really slashing prices even as Marks and Spencer did the other day for just one day but the VAT reduction is so minuscule in real terms that I don't believe it will materially affect buying decisions.

Businesses aren't too happy I understand with all the adjustments they are having to make to their computer systems etc to accommodate the VAT change, and knowing that they will have to repeat the exercise in 13 months time. For all their alleged support for small and medium sized enterprises (SME) it seems that the government just do not understand how things work at the sharp end. Quite a number of businesses are reluctant to lower their prices to reflect the change in VAT and I don't blame them.

The government's projections in last Monday's PBR are so optimistic that they don't seem real to me. It would be nice if the recession was short and shallow but I just don't see it happening that way. Labour figures for borrowing and later repaying our debts seem to be based on a best case scenario, if they have called it wrong then our problems will be much worse than we can imagine.

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