VAT cut has ‘boosted sales’

The Government’s VAT cut has led to a ‘remarkable’ rise in consumer spending, a leading think-tank has claimed.

A study by the Centre for Economics and Business Research (CEBR) reveals that last year’s 2.5% reduction in VAT has generated an extra £2.1 billion worth of sales.

‘The figures are clear; the VAT cut is working,’ the CEBR 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 2008 to 2.6% in December. Sales growth accelerated further in January to 3.2%, and registered a marginal decline in February to 3%,’ it added.

According to the CEBR, retail sales for the year are expected to be £8-9bn higher than they would have been without the cut.

The organisation is now calling for the reduced rate - due to expire in January 2010 - to remain in place for an additional six months until the economy is stronger.

Conversely, recent research by the British Chambers of Commerce (BCC) suggests the reduction in VAT has done little good. In a survey of 400 firms, 76% of respondents claimed that the cut had been of ‘no benefit’ to their businesses, while nearly a fifth said the cut had actually been a burden.