Bold words…

“Despite having to make the cut in VAT, our members are telling us that it is simply not worthwhile passing on the reduction to consumers once they have taken into account the cost and hassle of having to make the administrative changes.”

Those were the words of Phil McCabe of the Forum of Private Businesses back in the end of 2008 when Chancellor Alistair Darling pushed VAT rates back from 17.5 per cent to 15 per cent.

The move, a hopeful ploy to stimulate the economy, was set to bring chaos to the country as it was quickly flagged as being a costly mistake that could cripple the country.

Small businesses were set to fall under the new plans as there were cries that many companies would not be able to cope if they were forced to lower their prices to match the VAT slash.

But in reality…

Well Mr Darling can now take a slightly relaxed sigh of relief as has turned out that he was right and the Forum of Private Businesses was in fact wrong.  The VAT cuts are proving to have been the right move for the country according to research by the Centre for Economics and Business Research.

The CEBR are claiming that the 2.5 per cent reduction in VAT has brought about a massive £2.1 billion increase in retail turnover.  Due to this massive increase the CEBR are calling for the cut in VAT to remain at 15 per cent for a further 6 months.

“The figures are clear; the VAT cut is working. The rise in retail growth is even more remarkable given the economic context over this period,” claims the chief executive of the CEBR, Douglas McWilliams.

The CEBR have released a report that highlights how the VAT cuts stimulated the retail sector to increase up to 3.2 per cent in January’s annual growth from 1.6 per cent in November.  Although the figures have slightly dipped to 3 per cent in February the CEBR are claiming that the growth can be put down to the VAT cut.

Can it really be true?

However, the Federation of Small Businesses released a survey earlier in the year which claimed that 97 per cent of small businesses had felt no difference to their trade after the drop in VAT.

In fact, more evidence is cropping up to substantiate McCabe’s claims that the VAT cut would harm the economy as the British Retail Consortium has claimed that the retail sector actually spent £90 million just to make the changes that were implemented by the VAT cut.

Furthermore, the Consortium expects another £90 million to be spent returning business back to normal when VAT is returned to 17.5 per cent at the end of 2009.

VAT Cut – A blessing or a curse?

Did you welcome the VAT cut?  Has it benefited your business or has it cost you unnecessarily?  Leave us a comment and let us know what you think…

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