VAT cut criticised by IMF chief economist

The recent 2.5% cut in VAT has been criticised by Olivier Blanchard, an International Monetary Fund economist.

VAT was cut from 17.5% to 15% from Monday, December 1 for 13 months in an attempt to boost spending.

However, Mr Blanchard believes the temporary cut in VAT is not a good idea would not significantly change the behaviour of shoppers, adding that the cut is not ‘an incentive to spend’.

He also reiterated previous comments that Governments should be prepared to spend more in order to stimulate their economies.

In an interview with French newspaper, Le Monde, Mr Blanchard’s comments were seized on by the Conservative party, who have also criticised the VAT cut.

David Cameron, the Conservative leader, has previously warned that the UK cannot afford to borrow to provide the funding for the temporary cut.

Shadow Chancellor George Osborne added the recession is deepening and Labour is bankrupting Britain.

However last week, a consumer confidence index from market research group GfK NOP rose two points to -33 in December, taking it to the highest level since September.

For the second consecutive month, UK consumer confidence has improved, indicating that the huge reduction in interest rates and the recent cut in VAT are having a positive effect, according to GfK NOP.

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