It is now looking nailed on that VAT will be reduced by 2.5% in order to stimulate spending.
The problem is that with the fall in the value of the pound, most imported items, for example, a Playstation 3, have technically gone up in price for Sony, but have had their prices pegged so as to protect consumers. So will prices now come down 2.5% when the cost to Sony has gone up by 15% in the last few weeks ?
The chances of seeing a £300 PS3 coming down to £292.50 is very small indeed, meaning that a cut in VAT will make no real difference whatsoever.
So in effect we will have a big give away by the government which manufacturers and retailers will benefit from , but not consumers. So how will this increase spending by consumers ?
Update : As has been pointed out by comments, VAT is not levied on food, so the poorest who have the highest % of their income spent on food will benefit the least from these proposals.