Wish I\’d thought of this myself. But I didn\’t.
Between businesses of course the VAT rate doesn\’t matter, unless you want to argue minor points like cashflow.
In order to work, to provide a fiscal boost, VAT needs to change the prices paid by consumers in the shops.
But prices aren\’t determined by anything so logical as taking costs, adding a margin and then adding VAT. For almost all products, prices are set at "price points" which roughly approximate to what you would get if you did indeed do that calculation.
If by calculation you end up with a price of £1.03 then you\’ll probably have a retail price of 99p and take the lower margin. Ditto calculation to 96p and take the higher margin at 99p. Or £410 and £399 and £370 and £399.
So if items are priced at these price points, at £0.49, £0.99, £4.99, £49.99 and £499.99….how much difference is 2.5% off the 17.5% rate of VAT going to have?
Other than to widen retailer\’s margins, of course?
In other words, will the consumer see anything other than the most marginal benefit?
Further, let\’s say that it is indeed retail margins which will benefit from this. That will indeed turn up in their profit margins. Which we\’ll all be seeing the reports of in 14-18 months time.
Errm, that\’s quite a long time to be waiting for the visible effects of a fiscal boost, isn\’t it?
I guess the real measure of the effectiveness of this, umm, measure, depends on how much of consumer spending is subject to pricing at price points. Anyone know?