Shop Junction Blog

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In the UK today, the VAT rate was reduced by 2.5% to 15%. Value Added Tax is charged on most things that we buy; it’s like a purchase tax. This is the first change in the main VAT rate for many years and it’s an attempt by the government to stimulate consumer spending. It’s one of a raft of measures that were introduced in last week’s pre-Budget Report in order to stimulate the economy and ameliorate the effect of the credit crunch or recession that we appear to be entering.

On the face of it, a reduction in VAT rate is a good thing for the consumer but I’m not sure that it will have much of an effect on consumer spending. For example, I need to buy a new laptop and, assuming I spend about £500, the VAT saving will be £12.50. With all the other discounts in the pre-Xmas sales and other various online discount that are available, the VAT reduction is perhaps not so noticeable.

On the other hand, the UK chancellor is not normally given to largesse when it comes to taxes so we should not be too critical. The VAT reduction lasts for over a year so it will save money on purchases in 2009. However, overall I think the effects on consumer spending will be limited. The VAT change will mostly have an effect on those special larger item purchases rather than everyday shopping in my opinion.

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