Pre-Budget Report 2008: BDO responds to cut in VAT rate to 15 per cent

Marc Welby, VAT Partner, BDO, commented:  “The reduction in the VAT rate is too small to influence consumer spending – moving key labour intensive services from the standard rate to the reduced rate of 5 per cent would not only have stimulated consumer spending further and faster but would help staunch (and possibly reverse) unemployment in those sectors.  It would have helped to create a virtuous circle

“The VAT rate reduction will save the average customer little more than £1 per week on a £100 supermarket shopping bill – the VAT on crisps and fizzy drinks will come down but there’s no VAT on zero-rated foodstuff basics – bread, milk, meat and potatoes.

“A drop in the VAT rate will have no enduring benefit for customers – it may give a small fillip in the run up to Christmas but it won’t persuade consumers to spend more than they would otherwise have done before the PBR: and with the increase in alcohol duty it won’t even allow consumers to buy more Christmas cheer: the Chancellor has given with one hand and taken away with the other.

“The biggest winners are likely to be in the financial sector – the banks and insurers who can’t recover all the VAT on business costs.  There may be a temptation for some of these to advance some of their business costs before the VAT rate goes up again at the end of 2009.  It will remain to be seen whether they will pass the benefits of their reduced costs through to the lending rates to consumers and small businesses.”

For more information, please contact Matthew Longbottom at BDO on 020 7893 2717, 0797 619 8786.

Notes to editors:

BDO LLP operates across the UK with over 3,000 partners and staff. BDO LLP is a UK limited liability partnership and the UK Member Firm of BDO International. BDO International is a world-wide network of public accounting firms, called BDO Member Firms, serving international clients. Each BDO Member Firm is an independent legal entity in its own country. The Belfast Firm is operated by a separate Partnership.

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