VAT: a non-issue or a deal-breaker?

VAT is back on the agenda following re-introduction of the standard rate from 1 January.

With the objective of stimulating consumer spending, the temporary VAT decrease introduced in December 2008 actually resulted in huge debate about whether it had any real impact.

Two major retailing organisations disagree on this point, with The Centre for Economics and Business Research (CEBR) estimating that the 13-month tax cut helped boost consumer spending by £6.8bn, whilst the British Retail Consortium (BRC) says it has had a "very limited effect".

In hospitality terms, the issue was largely academic as prices had already started to reduce significantly to stimulate consumer spend, so a 2.5% decrease made very little difference.

The focus for these decisions has been on the adverse effects on consumer spending, but time will tell whether this argument is founded, as increases and decreases at such a marginal level are surely irrelevant to many.

In terms of reaction to the recent VAT increase, larger operators have announced differences in their approach to passing it on, with some announcing that they will absorb the cost, putting pressure on smaller companies to match the offer.

So the real sting in the tail may well that a seemingly small increase of 2.5% in VAT could in reality mean a decrease of 2.5% on the bottom line. With pressure on the bottom line already significant, how many can withstand this?

Do you have any comments on this topic? We would like to hear your views.
Please email: stinginthetail@epmagazine.co.uk

Here are some comments received from our most recent Sting in the Tail on the impact of everyone in an entire economy ‘waiting to see’:

"Yes. I think this government has run out of ideas. The events of the last 18 months have been so cataclysmic that they are now pausing for breath unable to do anything other than a populist move like bash the bankers. They are now like a football team thumping the high ball to a tall striker in the hope rather than expectation of anything happening. To adapt the words of Monty Python it is an ex- Government, it has ceased to be."

"If we all just wait and see the train will be gone! There are opportunities out there, they are just fewer and harder to find than they were in the positive trading climate we revelled in before the current downturn. Favour benefits the brave, although not the foolhardy. The wait for a general election provides another excuse for many to 'wait and see'. Will it really change much in the medium term? Not really in my opinion. Parliament leaps from crisis to crisis already, causing uncertainty, caution and apprehension for both business and the consumer."

Didn't read the last sting in the tail? Read it here