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VAT cut to take 53 pence off a £50 shopping basket
Archived article dated Tuesday November 25th 2008
Analysis from the advisory firm Deloitte suggests that assuming that the full 2.5% cut in VAT announced in today's Pre-Budget Report is passed on to consumers it will take just 53p off a typical £50 shopping basket.
Based on a typical supermarket shopping basket the total price would go from £50 to £49.47. This reflects the fact that lots of food items which do not attract VAT would be part of an average shopping basket.
Daniel Lyons, Indirect Tax Partner at Deloitte, said: “It is difficult to see how this measure is going to encourage increased spending when the amount of money being saved by the consumer is likely to be so small.”The 2.5% cut in VAT would also result in relatively small reductions in the price of higher value consumer goods. For example, a £550 flat-screen TV would cost £11.62 less with the new cost being £538.38. Shoppers buying a new £300 washing machine would save £6.38 with the new cost being £293.62. Somebody wishing to buy a new Toyota Prius would save around £375 on a £15,000 car.
Lyons added: “Even on big-ticket items, it is questionable whether the level of savings would be high enough as to attract new purchases.”
The VAT cut will save the average earner, receiving an annual salary of £25,000, around £170 per annum. This is calculated by estimating annual income after tax and National Insurance Contributions as £20,000 and assuming that over half the income goes on items without standard rate VAT, ie housing, food, utilities, insurance, council tax.
Tagged as: deloitte | tax | vat | economy
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