VAT cut 'had little or no effect' on spending

Alongside other state measures to jolt the economy, the cut in VAT was last week cited as why confidence has returned to businesses, particularly those in the IT sector.



This came not from ministers, but from the UK body of chartered accountants, which said the VAT reduction was one of three policies to have made firms more positive.



But the verdict, by the Institute of Chartered Accountants, of a brighter outlook for IT, and some other sectors, was then undermined by 1200 job losses at IT giant Fujitsu.



Now, experts at PricewaterhouseCoopers have indirectly put a second question mark by the ICAEW's claims, for finding the lower VAT rate has had little or no effect.



The barely visible impact on consumer spending will disappoint government ministers, who unveiled the £12billion cut in November as an economic stimulus.



In the PwC poll of 2,000 adults, almost nine out of ten said reducing VAT from 17.5 per cent to 15 per cent had not prompted them to spend more on goods or services.



These respondents dismissed the VAT change as insignificant when compared to other economic factors, such as their falling incomes, which affect their spending.



Only 8 per cent of those questioned said they had spent more since VAT had been cut, with 5 per cent spending a little more and 3 per cent spending a lot more.



Although all the respondents were active consumers, the remaining five per cent of those asked said they were not aware any change to VAT had been introduced.



Stephen Coleclough, tax partner, PricewaterhouseCoopers LLP, said: "The rest of the year will demonstrate whether the cut can still have the desired effect.



"It will be interesting to see whether consumer spending is affected by retailers potentially bringing forward their New Year sales in anticipation of a VAT increase in January."