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interestrateripoff

Darling's Vat Cut 'had No Effect On Consumer Spending'

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http://www.guardian.co.uk/business/2009/au...cut-ineffective

Last year's cut in VAT to 15% from 17.5% has had little or no impact on consumer spending, according to a survey by consultants PricewaterhouseCoopers.

The company interviewed 2,000 consumers and found that an overwhelming 88% said that the VAT cut had not prompted them to spend more on goods or services.

The respondents also dismissed the measure as insignificant when compared with other economic factors, citing reduction in income and economic uncertainty as more potent influences on their spending.

Stephen Coleclough, tax partner at PwC, said: "These figures show that, despite it being designed as an economic stimulus, the vast majority of consumers' spending has been unaffected by the VAT cut.

"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."

Moreover, 5% of those polled by PwC were unaware that there had even been a cut in VAT, which is set to be reversed on 1 January next year. Only 8% of people said they had boosted their spending as a result.

The report stoked renewed criticism of the government's £12bn VAT cut, made in last November's pre-budget report by the chancellor, Alistair Darling, which both the Conservatives and the Liberal Democrats ridiculed at the time as ineffective.

"This is yet more evidence that Gordon Brown's VAT cut was a costly and expensive failure," said Philip Hammond, Conservative shadow chief secretary to the Treasury.

Jeremy Browne, his Liberal Democrat counterpart, said: "The government's defence of its wasteful VAT cut continues to unravel. Its benefits have been overstated and most of the money is not helping the poorer households that are struggling in the recession.

"This ineffectual VAT cut is costing £1bn a month. Ministers should scrap it immediately and spend the money on transport and environmental projects which would boost the economy, create new jobs and leave a lasting green legacy for Britain."

The Treasury, though, has regularly defended the tax cut as putting the equivalent of almost 1% of gross domestic product back into the economy.

I think they are missing the point as to why VAT was cut, it wasn't to stimulate spending as such it was to manipulate the inflation figures downwards in the short term so they could get away with QE and say they where worried about price deflation. So they could quickly print some free money.

Basic manipulation at it's finest.

Edited by interestrateripoff

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http://www.guardian.co.uk/business/2009/au...cut-ineffective

I think they are missing the point as to why VAT was cut, it wasn't to stimulate spending as such it was to manipulate the inflation figures downwards in the short term so they could get away with QE and say they where worried about price deflation. So they could quickly print some free money.

Basic manipulation at it's finest.

But it has helped the margins in small business that were having to discount to put bums on seats....Great in a restaurant. Extra £8750 of GP in a calender year.

Edit: That is assuming I did no more business than I would have done otherwise (so its impact could have been greater), and no less than if I had reduced the price of a starter from £5.95 to £5.83

Edited by Hip to be bear

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But it has helped the margins in small business that were having to discount to put bums on seats....Great in a restaurant. Extra £7500 of GP in a calender year.

So what you are saying is that you never passed the VAT cut onto your customers! Quelle Surprise.

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So what you are saying is that you never passed the VAT cut onto your customers! Quelle Surprise.

No...see edit above, but I was having to do sharper deals to put bums on seats anyway....(we took £3 off our set lunch and started doing better evening deals). We were already taking the hit and passing on savings in other ways. Bogofs on certain wines by the glass...cunningly bought of course ;) etc

The VAT cut has helped to offset some of that lost margin.

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as OP says, IR cut was to cause inflation to drop...

But that can effect can only last for 1 year before the figures work through. Then the double whammy of the rate going back up to 17.5%, which will stay in the system for a year.

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as OP says, IR cut was to cause inflation to drop...

I agree, but what happens when it goes back on?

Falling demand?

Higher Inflation?

A quick surge before Christmas?

GDP on the up?

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I have a funny feeling when the whack it back up to 17.5% or 20% it will have a dramatic effect on consumer spending...when are they due to put it up ?

Jan 1st...Middle of the sales. Will the retailers leave the prices the same and just take the margin for the first few days?

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I agree, but what happens when it goes back on?

Falling demand?

Higher Inflation?

A quick surge before Christmas?

GDP on the up?

Any upwards effect it has on CPI/RPI will be disregarded by the BoE when they throw up the smokescreen by inventing a forecast for inflation two years out, and talk about targetting that. Cut VAT or manipulate the figures downwards though and that all changes. Immediate cuts and QE to fight deflation become the immediate concern.

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What a load of codswallop. All this shows is that PwC are effing clueless at designing research/ surveys. Most people have no idea what they spent on VATable goods in a given period so asking then if they spend more or less is totally meaningless. They simply don't know. Not everyone is a bloody accountant who keeps a spreadsheet on their daily spending. Perhaps PwC would have been better off conducting a survey on which Big 4 accounting firms are the most clueless.

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£6 for a starter! Up north we have pubs where you can get a main meal and a pint for that.

We do down here too. But I suspect they are crap, just like up north :lol:

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£6 for a starter! Up north we have pubs where you can get a main meal and a pint for that.

A lot of people will pay£2.25 ish for a coffee from Costa that cost them 25p.

If you want to eat in a shit pub where. the cook (on minimum wage) who has less brain cells than fingers is reheating mass produced pap in a microwave, without washing his hands after having a crap or picking his nose, then go for it.

If you want to eat in a restaurant in a unique and desirable location, which is recommended by the AA and Michelin, where the highly professional and skilled chef earns a decent salary and the wage bill for the kitchen alone is close to £100K, then you pay £5.95+ for a starter.

You can buy Lada or you can buy an Audi.......You seem to be the Lada type to me!!! ;)

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A lot of people will pay£2.25 ish for a coffee from Costa that cost them 25p.

If you want to eat in a shit pub where. the cook (on minimum wage) who has less brain cells than fingers is reheating mass produced pap in a microwave, without washing his hands after having a crap or picking his nose, then go for it.

If you want to eat in a restaurant in a unique and desirable location, which is recommended by the AA and Michelin, where the highly professional and skilled chef earns a decent salary and the wage bill for the kitchen alone is close to £100K, then you pay £5.95+ for a starter.

You can buy Lada or you can buy an Audi.......You seem to be the Lada type to me!!! ;)

Indeed ;) .

Whetherspoons is never going to tingle anything other than your stomach, before giving you the raging squits.

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Indeed ;) .

Whetherspoons is never going to tingle anything other than your stomach, before giving you the raging squits.

Wetherspoons...Cheap yes, but so busy that they need to have decent staff to cope. I hear its a great company to work for. I would trust them and their food over others......As cheap crap goes it is consistently good cheap crap!!!! :lol: . And washed down with a pint of Greene King IPA for a 99p earlier in the year, you could hardly go wrong.

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Wetherspoons...Cheap yes, but so busy that they need to have decent staff to cope. I hear its a great company to work for. I would trust them and their food over others......As cheap crap goes it is consistently good cheap crap!!!! :lol: . And washed down with a pint of Greene King IPA for a 99p earlier in the year, you could hardly go wrong.

I'll take your word for it re the food. Happy to drink the cheap ale as it's sterile, but my delicate stomach wouldn't be risked on the food.

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I'll take your word for it re the food. Happy to drink the cheap ale as it's sterile, but my delicate stomach wouldn't be risked on the food.

Must admit I haven't eaten there, though I dented the IPA in the Spring. I have customers who will only eat in 3 places in town:

Wetherspoons for the value food and it does what it says on the tin.....

Us for the brilliant mix of quality, value, service, location and witty repartee from the dashing host ;)

And another... possibly a posh...ish...pizza chain...can't remember honest!

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Must admit I haven't eaten there, though I dented the IPA in the Spring. I have customers who will only eat in 3 places in town:

Wetherspoons for the value food and it does what it says on the tin.....

Us for the brilliant mix of quality, value, service, location and witty repartee from the dashing host ;)

And another... possibly a posh...ish...pizza chain...can't remember honest!

Is the passing on of the VAT cut a requirment in your business?

If it's not, do you have to disclose it either way to customers?

2.5% isn't much on a bill, but over a year it is to a business working on close margins.

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Is the passing on of the VAT cut a requirment in your business?

If it's not, do you have to disclose it either way to customers?

2.5% isn't much on a bill, but over a year it is to a business working on close margins.

As I posted earlier!

A pint at 99p in Wetherspoons is not going to become a 96.8936p pint due to the VAT cut.

Similarly I set my prices inc VAT and I haven't changed them by 2.13% due to the VAT cut...I was and still am discounting in other ways. As a retailer (of restaurant meals), all it has done is to improve my already suffering margins, and offset the duty hike on booze that happened at the same time that the £'s demise meant 15% increase on most wines.

Edited by Hip to be bear

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I was mainly asking about disclosing to punters.....

I guess most sheeple don't even realise VAT was cut and accept a price to be a price, unless you banner a cut in price due to the VAT cut.

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I was mainly asking about disclosing to punters.....

I guess most sheeple don't even realise VAT was cut and accept a price to be a price, unless you banner a cut in price due to the VAT cut.

I reckon most businesses price products on the maximum their punters will pay. Others price on double what the item is worth and th offer 50% off on a bank holiday weekend. Others collude with suppliers to fix prices high and then deep discount....Supermarket wine sales. Only if you publish prices ex VAT does it make any difference.

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No...see edit above, but I was having to do sharper deals to put bums on seats anyway....(we took £3 off our set lunch and started doing better evening deals). We were already taking the hit and passing on savings in other ways. Bogofs on certain wines by the glass...cunningly bought of course ;) etc

The VAT cut has helped to offset some of that lost margin.

Not the Italian "Antifreeze" specials - surely? :o

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Not the Italian "Antifreeze" specials - surely? :o

Italian antifreeze is far too expensive, what with the pay-offs to the mob and the extra taxes to pay for Berlusconi's hookers.

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