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Cutting VAT by 2.5 per cent is a logistical nightmare say shops
Jonathan Prynn and Jim Armitage24 Nov 2008
Alistair Darling faced a growing backlash against the 2.5 per cent cut to VAT announced in the pre-Budget report today.
Retailers said the cut — from next Monday, 1 December, for 13 months — would cause a logistical “nightmare” on the high street while making very little difference to consumers' spending plans.
The Chancellor announced the cut in the sales tax today, bringing it down to 15 per cent, the lowest level allowed under European law. It is hoped that putting more money in shoppers' pockets will encourage them to spend and give a boost to the flagging economy.
But one of Britain's leading retailers condemned the move: “Changing VAT will make no difference to how shoppers behave. Is it really going to pull people into M&S if they put up posters on the window saying £9.84 for a £10 jumper'?
“In the meantime, it's going to cause chaos for businesses. Just think about it: every price in the shops will have to be changed, every menu in a restaurant repriced and rewritten. Nightmare.”
Another retailer pointed out the high street was already awash with 20 per cent and 25 per cent discount offers for an extra £2.50 in every £100 spent to make a huge difference.
A director at one department store chain said: “It is very complicated. We're getting the systems people and the finance people all together to see what we are going to have to do about it.”
The chain would have to reprice all its 350,000 different lines, he said.
Tory leader David Cameron also doubted the VAT reduction would lure shoppers back to the high street, stressing that the “only certainty is that you are likely to take another £12 billion and add that to the already enormous borrowing requirement”.
Liberal Democrat Treasury spokesman Vince Cable said: “What we really need is permanent fully funded tax cuts targeted at those on low and average incomes, through reductions in income tax, rather than giving a temporary VAT cut, which will primarily reward the big spenders who have loads of money.”
However, Tory former chancellor Kenneth Clarke said: “If it's possible to afford a fiscal stimulus I would go for VAT because the only case for a fiscal stimulus is to stimulate spending and consumer demand, so the tax on spending is the one to go for. But it should be temporary.”
Former trade minister Lord Jones also doubted whether the VAT cut would persuade people to spend more.
Andy Garbutt, retail director of consultants PWC, said: “Are people going to notice 2.5 per cent? In retail, it really has to be a fifth or a quarter.”
He said some retailers, particularly those who sold at a fixed price point like £10 or £20, could choose to pocket the difference to build a war chest for next year's battles.
A spokesman for the British Retail Consortium welcomed the VAT cut.
Small businesses also welcomed the move, saying it would give a useful cashflow boost. They have to pay VAT on their supplies before they can reclaim it on the goods and services they sell.
Reader views (12)
Giving a 2.5% cut in VAT is pointless. If we need the public to spend money, lets give them direct monies back, as in making cuts in local council tax as an example. As most people pay by direct debit or at their council offices monthly, you automatically have extra cash in your pocket. Having to spend to save is a complete waste of time!!
- Graham Percy, Bognor Regis UK, 26/11/2008 17:04
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What is Pound World going to do?
- Steve Harris, epping, essex, 25/11/2008 08:48
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Well, to ask Eddie O'Riordan, why did you vote for them in the first place? More the fool! It has just taken you longer to realize the error of your ways!
- Joanna Carling, london england, 24/11/2008 22:02
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The workload this vat break has caused is unprecedented, in one week computer systems need toe changed margins need to be looked at and every single item re-priced, a great way to upset the retailer and the customer. If the breaks are not passed on this week then you can forget selling anything until Monday, already we have had customers phone up and cancel furniture orders, only to be told they will see us next week. This VAT break is going to cause nothing but headaches.
- Sarah Crooks, Hertfordshire, 24/11/2008 19:15
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This is how they make inflation look like it is less than it is.
- Garth, Slough, 24/11/2008 17:25
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As usual with Labour and Brown in particular check your back pocket because you can be sure that if he gives you a fiver - his nicked 10 out of you back pocket - I will never ever ever ever ever ever vote for these clowns again.
- Eddie O'Riordan, Wisbech, 24/11/2008 16:59
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Good old labour, re arranging the deck chairs on the Titanic once again! 2.5% is a saving that will not be passed on but swallowed by hungry businesses in the same way that reductions in the base rate are swallowed by greedy bankers desperately trying to protect their bonuses ! The only winners will be software reprogrammers and stationary suppliers!
- Little Jason, Eltham London England, 24/11/2008 16:42
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Whilst lowering VAT in essence is a good idea, the small amount by which they are lowering it is very unlikely to induce the required result.
The costs involved to businesses (small and large) are huge in comparison - prices need resetting, software needs resetting, accounting changes etc etc - this is a huge cost and will ultimately be passed on to consumers.
I really question this Governments 'political lipservice' to the dire situation we are in - if they really want to stimulate growth they should be removing the red tape and high taxes which are hindering small businesses in this country and instead focus on properly regulating the large businesses in this country (i.e. the oil companies and banks) who are literally holding consumers to ransom.
How about spending the 15 billion they will lose in VAT receipts instead on Government backed loans to small businesses which WILL create jobs and growth instead of encouraging people yet again to spend money on things thay cannot afford?
It is really depressing to see over the past 6 years this country descend into a mindless, paper shuffling nanny state which has wastefully overspent in all the wrong places and left little legacy to our future generations.
- Brett, London, United Kingdom, 24/11/2008 13:09
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2.5%? What a laughable amount. That's about 7 quid off a £300 telly. Not exactly going to get the economy moving is it?
And it still doesn't address the fundamental problem: where are WE the consumers supposed to get the money to buy all these shiny new, cheap(er) goods? We are not getting a direct tax cut to put more money in our pockets.
- Nobby Clark, Perth, Scotland, 24/11/2008 12:57
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This sounds like a 'Let Them Eat Cake' moment . . .
- Roz, Chamonix, France, 24/11/2008 12:36
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What is the odds the stores just put their prices up by the 1.7% [or whatever the figure is] to save the cost of re-printing....
- Mike Hudgell, London, England, UK, 24/11/2008 12:12
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The most vulnerable are small businesses, because they are less able to consolidate and grow back at a later date.
The best thing that can be done for them is a change in planning law to guarantee visitor and supplier parking for all small shops in inner cities. Also, a moratorium on all conversions of shops to residential, so that a more realistic commercial letting market emerges, rather than the current one predicated on local residential rents. It is local councils that are in control of planning laws, yet we have heard precious little from the LGA or any London boroughs on the subject.
The VAT reduction itself contains too many transactional/administrative costs to be of use to most small businesses. If central government figures want to make speeches about helping small business, they should merely point out who has the power to do so.
- Reg, London, 24/11/2008 11:49
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