Hands up if you think that retailers will cut prices by 2.5% if VAT is reduced

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.


Null said...

My hands are are firmly down by my sides, Nich. Your analysis is spot on.

Anonymous said...

When the sales are already on with 20%+ reductions with apparently little impact will 2.5% make.

It is being reduced now so that at a later date they can justify a long term hike to say 20%.

Cynical Labour to the end.

Mark Thompson said...

Indeed. We seem to be agreeing on a lot today!

Your point about the savings not being passed on in full is one the points I have made here.

There are also lots of other problems with the proposal, not least of which many staple goods that poorer people have to purchase (food, children's clothes etc.) are unaffected by VAT anyway.

Would they not be better to just increase the tax personal allowances and thus give money back to everyone equally?

Anonymous said...

"So in effect we will have a big give away by the government which manufacturers and retailers will benefit from"

That will be the manufacturers and retailers that keep the consumers in jobs.

Anonymous said...

Quite. Moreover, since VAT is not on things like food and rent - things more crucial to any family than Playstation 3s - the only people who will notice are those already in loads of debt, or those who have the money to spend on new toys. The people who actually need 'help through these difficult times' - as our Prime Loon keeps saying - won't be helped at all.

Null said...

If I were commenting over at Guido's site, I would feel free to turn the page blue. As I am on a genteel LibDem sites, I will restrain myself:

This f*cking policy is f*cking doomed from the f*cking outset! Roll on the general election...

Man in a Shed said...

I think your right here. But how many days until the failure for prices to change becomes a political issue ?

The response - Brown getting major retailers in for a briefing on the price of tractors in the 5 year plan and the promise that something must be done.

Ultimately maybe even price controls ? Back to the 70's with Gordon.

The problem is 'confidence'. Panic measure sap that confidence.

Bill Quango MP said...

Petrol may well come down by 2.5% about a 2p saving/litre at current prices. but it might go lower or higher anyway as its the most volatile priced product we have.
Energy is 5% VAT. Will that be affected at all? probably not. Why not just scrap the 5% on energy and demand its passed on. Then every household gets cheaper fuel bills which they really want anyway.

Anonymous said...

As an indepenent retailer, with 5000 products on my shelf - how am I going to change the price?
I have to lift product from shelf, walk to till, scan in, change price, put product back on shelf, remove ticket, go to computer and type up and print new ticket, put it on shelf edge. I then have to go to computer and change price on website.
Maximum no of staff on at a time: 3
Minutes to change price of one product: 5
5000 products to change - total 25000 minutes (416 hours)
All this for minimal benefit to customer. Extra manpower needed 416 hours @ £6.00 per hour - Total cost to me: £2496. I simply cannot afford this!
Will the government compensate me?
I don't think so.

Nich Starling said...

Bill, VAT cannot drop below 5% because of an EU regulation the last Tory government signed us up to.

Bill Quango MP said...

But of course I would be advocating a big "up yours Delores" and whatever we need to do. Much like the French and Germans do themselves.