VAT to be reduced or a huge bluff

The mainstream media (msm) are full of stories about an impending cut in the standard rate of VAT from 17.5% to 15%. This, we are told, is going to be one of the planks to be announced in the Pre Budget Report (PBR) tomorrow afternoon in the attempt to stimulate the economy. But is it all a huge bluff to wrong foot the opposition I ask myself. If we assume that there will be a VAT reduction then letting that information out early seems totally bizarre - it allows the opposition parties to examine the arithmetic and prepare a counter-attack.

If the 'leak' was deliberate then once again it shows the huge disdain of one group of people to the rest. The Chancellor is to make his statement to MPs in the House of Commons and it could not be more wrong for them to be getting information already in the public domain. I think I've blogged before (or at least I certainly meant to) about the way that the main thrust of someones speech is released to the media prior to the audience listening to the speech get to hear it. This is very discourteous and absolutely unacceptable in my book, yet it is taken as normal procedure these days. So far as the lowering of standards in public service is concerned this is a prime example. Of course the media are benefiting from this so don't expect any interjection from them about this practice.

For the sake of argument let us suppose that VAT will be reduced by 2.5%. Now imagine someone going into an electrical shop to buy some white goods costing, before VAT, £300. The VAT on this at 17.5% is £52.50, reduced to 15% it would be £45 giving a saving therefore of £7.50. Now would the prospect of paying £7.50 less on the item actually sway the purchasing decision. I would say probably not. However seeing a big notice saying £70 off (because the retailer needs the sale) might do the trick. Because of sluggish sales prices are likely to fall anyway without state intervention. In fairness I have to say that some businesses might gain to a degree with a VAT reduction e.g. a service industry where they have to invest in a stock of spare parts which may only trickle out as sales go fairly slowly.

Another aspect of VAT reduction is that it is mainly of benefit to the very well off who have a high consumption lifestyle. For those of us whose main outgoings are things such as food, rent, mortgage, council tax help with VAT is not very relevant. As I hinted at the beginning it may all be a con anyway and VAT rates won't be touched. In less than 24 hours we will all know.