At the back end of November when the reduction in the VAT rate was announced I was quite clear in my own mind that this particular policy wasn't going to do the job intended. There doesn't appear to be any evidence that it has motivated shoppers to go spending again, not that it would be easy to judge whether any extra activity would be down to the VAT cut or more likely the massive discounting taking place on the High Street. Interestingly Simon Wolfson of 'Next' and Sir Stuart Rose of 'Marks and Spencer' have poured cold water on the VAT plan this week.
This whole VAT thing came up for debate in the House of Commons last month and the government comfortably won the vote with a majority of 80. One Labour MP who voted with the Tories and LibDems was Frank Field. Now I am an admirer of Frank Field who is quite prepared to assert his independent view and go off message, we need more like him. It will be remembered that he led the rebels causing the government to cave him over the matter of the 10p tax rate. Incidentally what Gordon Brown did for purely political purposes, abolishing the 10p rate in his final budget, is something I believe should never be forgotten or forgiven.
It was former Tory Chancellor Ken Clarke who was one of the first cheerleaders for the VAT rate cut but I can't help thinking that perhaps he is feeling a bit silly now. Clarke is generally credited with doing a good job looking after the Nation's finances in the dying years of the Major administration and has business experience as well. Therefore I was surprised at him taking the stance he did on the VAT.
There are of course instances where the consumer will clearly benefit from the VAT rate change, particularly on the service side as opposed to retail. An example - a car needs £300 of work done on it to pass the MOT test. This is essential expenditure not discretionary purchasing. As such the saving on VAT would prove to be very acceptable! In the HoC debate Stephen Timms for the government reckoned that the average household spent £900 a month on VAT rated goods and services which would mean a saving of £20 per month following the VAT change. Put like that it sounds good but (a) I'm dubious about the figures and (b) I don't think that is enough money to make the family go out and spend the saving. It might go toward paying off a credit card bill (no bad thing) but stimulate them to spend more in the shops? I don't think so.
Bearing in mind that the VAT rate change was the flagship policy in last year's pre-budget report it looks as if the government aren't very keen to shout about its supposed benefits at the moment. My gut feeling is that it's there because of the insistence of the old chancellor (Brown) rather than the present incumbent (Darling).