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Wednesday 12th of August 2009
April 13, 2009

VAT cut working as retail sales rise


by Kay Murchie
”VAT

Figures from the Centre for Economics and Business Research (CEBR) have revealed that the Government’s VAT cut, implemented on December 1st, is working after it led to £2 billion of additional sales.

Douglas McWilliams, the CEBR’s chief executive, described the growth in retail spending as “remarkable” and said: “There was an immediate boost to the volume of retail sales after the cut was introduced.”

“Annual growth in retail sales accelerated from 1.6% in November to 2.6% in December - sales growth then accelerated further in January to 3.2% and registered a marginal decline in February to 3%,” equating to an improvement in retailers’ turnover of £2.1 billion.

With proof that the reduction has taken effect, the think tank argues that the temporary cut should be extended for six months - to July 2010.

Many reports have said retail sales improved due to heavy discounting - implemented to entice shoppers back to the stores. However, the CEBR said the improvement in retail sales is not because of discounts, arguing that since the reduction was implemented, growth in the value of sales, which also measures price changes, has remained steady.

The temporary cut of 2.5% has been widely criticised with many arguing that the cut is too insignificant to have an impact on consumers’ spending habits during the economic downturn.

A survey earlier this year, carried out by the Federation of Small Businesses, established that 97% of firms questioned said the VAT cut had had “no impact at all.”

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