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VAT Cut Will Help Business More Than Consumers

24th November 2008 | back to article listings BACK    print this article PRINT

Most people interviewed regarding the proposed VAT cut last night seem to think it would make no difference to them as a consumer in terms of making them spend more money. Maybe this will be no surprise to the government as to me it looks like a pretty clever way of pretending to give money to the taxpayer but in fact subsidising businesses dealing with the consumer.

I would expect many many retailers to try to keep prices the same and make a greater margin. The VAT cut is the equivalent of a 2.2% price rise for retailers if they do not change the VAT inclusive price to reflect the change of VAT from 17.5% to 15%. I've already spoken with some retailers who have no intention of passing this on and haven't yet spoken with one who intends to.

This sounds a bit familiar, banks given lots of money, failed to pass it on without significant pressure? Retailers now doing the same. It's a nice government handout for retailers this time.

The only people who are going to benefit automatically if nobody changes any pricing is businesses dealing with other businesses as pricing in the business to business market is always dealt with at net price and VAT added on afterwards. I doubt very much if businesses are going to raise their prices to other businesses as it would be very obvious. This is therefore an increase in profits for business to consumer businesses such as retailers etc and sounds pretty sensible from where I am.

The government came out with a statement that straight tax cuts would not have gone into increased spending but would have gone into savings. I wouldn't disagree with that so this less than subtle reduction in VAT targeting retail businesses who are suffering more than most at present makes a great deal of sense. Pity the government couldn't have been honest about this.

This news story has come from the property investment blog by Stuart Law, CEO Assetz plc.

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