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Cutting VAT by 2.5 per cent is a logistical nightmare say shops
Jonathan Prynn and Jim Armitage24.11.08
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.
