Monday, Apr 13, 2009
I simply cannot believe that a 2.5% cut in VAT has had this effect.
BBC News: Cut in VAT 'boosts retail sales'
The government's much-criticised cut in VAT is working and has led to a big boost in consumer spending, according to a leading economics consultancy.
The Centre for Economics and Business Research (CEBR) says that the cut, which took effect on 1 December 2008, has led to £2.1bn of extra sales.
Posted by flintster1994 @ 11:33 AM (1494 views) Add Comment
19 Comments
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1. paul said...
As the saying goes, "In politics, the future is always crystal clear - only the past is clouded with doubt"
2. Old_traveller said...
Funny how the article simply asumes that vat cut is the only factor both sufficient and necessary for the increase sale volumes, without any fact to back it up.
3. inbreda said...
Isn't this the CEBR centre of excellence that has been shown on numerous occassions to be full of chite?
4. A Solovine said...
Last Friday, on news that this crew - the CEBR (Completely Erroneous But Reassuring) - suggested that house prices may only have another 8% to fall, LP pointed out the following, so I think the site's got the CEBR's number:
1. little professor said...
More intelligent? CEBR are as much crazy bulls as Assetzzzz. Jan 2007: Britain's house prices to go on rising by £1,000 a month
A leading think tank says Britain's housing boom will continue in 2007, with average prices rising by more than £1,000 a month. The latest forecast from the Centre for Economics and Business Research says: 'Despite recent rate rises, house prices will continue to grow in 2007 and 2008, with annual house price inflation this year expected to hit 7.6 per cent.'
The CEBR is forecasting slower growth in 2008 and 2009, when house prices will probably increase by just 1.5 per cent and 3.9 per cent respectively. However, it does not share some experts' fears that the market could be in for a correction of between 15 and 20 per cent John Ward, one of the report's authors, added: 'The underlying fundamentals of the housing market continue to support prices.'
(Hope you don't mind, LP.)
5. cornishman said...
"The government's much-criticised cut in VAT is working and has led to a big boost in consumer spending"
- so that will be why car manufacturers are doing so well then...
""The figures are clear; the VAT cut is working," the CEBR said.
"There was an immediate boost to the volume of retail sales after the cut was introduced."
- sales went up at Christmas - whatever next?
"The CEBR ... believes that raising VAT again in January 2010, as planned, "threatens to cause a consumer downturn and choke the fragile economic recovery".
"The chancellor should extend the duration of the cut to July 2010, when the economy will be stronger."
- that'll be after the next election then, will it?
What a load of cr@p.
6. Poacher said...
When this initiative first came on stream I posted here that I thought all the criticism was misplaced. It's probably the only thing the government has done that doesn't skew the market. People have laughed at it because their view is that no-one cares about a 2.5% discount on any individual purchase, which is true, but the effect works differently.
If the business concerned doesn't pass on the VAT cut (most small retail businesses not issuing invoices won't, because of the complexity it entails - easier just to get the bookkeeper to adjust the apportionment in the accounts going into the VAT return) then they benefit from an immediately improved profit margin (if you're operating at slim margins of say 9%, a hike to 11.5% is actually a THIRTY PER CENT increase in income, which is a real lifeline).
If on the other hand the business does pass the cut on (as big retailers, and all scales of professional services providers have), then there is a substantial effect on the high street overall. No one leaves the high street thrilled with their 2.5% discount, in fact no one really thinks about it at all. What instead happens is that the vast majority of consumers (being a profligate bunch who even in the current environment tend to spend till the money's gone, rather than budget) spend the entirety of their disposable income and find it goes imperceptiably further - i.e. one extra (VAT rated) item in a basket of supermarket shopping for a pensioner; one extra primark t-shirt on a tramp round the west end for a 'bridget jones'.
The thing is, each and everyone of those items is vastly more productive for the economy than a 2.5% VAT receipt is for a government running a deficit. They represent continuing justification for jobs in retail and manufacturing, whereas the VAT receipts would only marginally reduce government borrowing and have no impact whatsoever on government spending (given that the government has no intention of living within its means). As a result the VAT move genuinelly boosts the economy, but without all the nasty moral-hazard side-effects of singling out the imprudent (in the case of bankers and overstretched home purchasers) or the arbitary (car makers), as it is evenly spread across almost all the population.
Shame the government aren't able to articulate this - but then I think they have a vested interest in minimising the electorate's economic literacy, so they probably prefer to avoid all sensible debate in case it gets us all thinking...
7. japanese uncle said...
Say it to the high street retailers shuting down at a horrific pace.
8. quiet guy said...
We seem to be automatically discounting any news that we do not agree with. The CEBR's record on house price predictions is terrible but we should not automatically assume that they're wrong about the VAT rate cut as well. If you cut VAT tax, consumers have more money to spend.
9. Welshie1701 said...
Is it not more likely that this boost in retail sales is down to the fact that the retailers have been slashing prices and running near-constant "sales" ever since the VAT cut?
We Brits love the idea of getting a "bargain!"
10. guiriduro said...
Rampant discounting (with a small VAT cherry on top) probably has more to do with it, also the very real threat of future inflation means now is a better time to buy (retail, not houses) if you have the means. All the laid-off folks with settlement money are more likely to buy stuff they want in a deflationary environment, as having a lump sum hanging around in a savings account is likely to adversely impact benefits claims etc. Pay off debt? Why bother when you can enter a voluntary agreement after the money is spent, for renters at least? Savings aren't a good thing to have in the UK at the moment. And of course there is the medium term issue of inflationary expectations due to QE, so buy now if the price is right (i.e. low enough.)
But I'm sure the deflation story is one they not so anxious to sell.
11. will said...
When they talk of a 'growth in sales', maybe they mean the number of reatil sales, heavily discounted, and not the total value of those sales. The report is a little vague. Statistics Statistics.
12. hpwatcher said...
they intend to win an election via a combination of labours dirty tricks department and talking up achievements no matter how small......
13. mark wadsworth said...
I couldn't care less what statistics or anedotal evidence people trot out - nobody knows what things would like if they hadn't done it, and that's the only fair comparison.
The fact is, VAT and Employer's NIC are The Worst Taxes of all, so cutting either of them (even for the wrong reasons) is A Good Thing, and with a government as incompetent and as corrupt as ours, we must be thankful for small mercies.
14. cyril said...
In the trade they call this a bandwagon story.
Contrary to popular opinion, newspapers love to print good news to cheer up their readers. The Centre for Business Research wants a bit of free advertising so it publicises this research on a slow news day. Job done.
Usually these stories are kicked off with a survey about car insurance or bog roll but the principle is the same.
15. d'oh said...
The CEBR has been so, so very wrong in the past couple of years that I cannot take anything that comes out of them seriously. VAT cuts may or may not have helped sales, but anything coming from the CEBR is neither evidence for or against the hypothesis.
16. it_is_going_with_a_bang said...
2.5% cut ???
As predicted back in December - if you walk around the shops now "most" of the good sare now back priced at 99p / £9.99 £49.95 £199.99 etc.
Just take a look at the major websites / retailers. How would you know there ever was a cut in VAT?
It is a complete myth. Interest rates at silly levels is what has boosted spending - as it was supposed to do.
But VAT ? Nope. That was just a publicity stunt. This bunch of chumps - the CEBR - are of course saying they were right bla bla. Ask the 97% of small firms what difference it makes. None whatsoever.
17. George said...
The 'boost' in retail sales merely reflects the high above B of E target CPI inflation. Fewer goods are actually being sold. - BBC propaganda is all this is.
18. The_patient_bear said...
thank you for the explanation Poacher:
what you say makes sense: it is the aggregate effect that counts, and how this effect is shared by different actors.
what does not make sense is CEBR's hype to their own report. oh wait ... that also does make sense...
night all
19. uncle tom said...
The notion that the 2.5% reduction in VAT wouild see people running to the shops was always risible.
Equally risible is CEBR's research data, who's lack of accuracy is well documented..