Sunday, 23 November 2008

VAT cut latest

King Charles Street
The lights have been on all night at the Treasury, where calculations for Chancellor Darling's next steps are being processed in large spreadsheets. The word is that VAT may be reduced along with some other measures.

A VAT reduction from 17.5% to 15% would remove the "temporary increase" made in 1991 to compensate for the Poll Tax debacle. Thats a reduction on a £9.99 VAT-ed item to an amazing £9.87, which I somehow think gets lost in the noise.

Such a reduction of some 2.13% in the price of an item requires spending of £469 a week on VAT-able items (eg not food) to save £10. It may chop cash from the Exchequer, but it doesn't make a lot of difference when even a £600 telly would still be £587.23 after the adjustment. The £13 is probably not the dealbreaker.

Let's try 12.5% VAT, a reduction of 5%. That's more of a 'UK Economy Winter Sale' level, but still requires the traders to pass on the savings, rather than have reasons to somehow round up ticket prices. That £9.99 becomes £8.50+1.05 = £9.55. When retailers are already knocking off 20% in pre Christmas sales, the 45p does not seem all that exciting.

How about a present? A Christmas Xbox would make an interesting example: A few weeks ago they were £169, then all the retailers passed on the manufacturer reduction which saw the price drop to £129 - forty quid less. A VAT reduction of 5% (ie to 12.5%) would take another circa £6 off of the price. Not enough to even change the second digit - £129 becomes £123. Hmm.
Having just flitted through Heathrow, the effect of pseudo 'No VAT' is more pronounced. The same item would become around £109 - see tourists buying up cheap items in the airside stores.

I suppose in the absence of a December VAT holiday, we will have to find other ways to amuse ourselves with the remaining banknotes.

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