By Anneloes van Iwaarden
Consumers in Britain have received an early Christmas present this Monday in the form of a 13-month cut in the Value Added Tax (VAT) on products.
The much-debated VAT cut from 17.5% to 15% came into effect on the 1st of December and will last until the 31st of December 2009.
Father Christmas, a.k.a. Chancellor of the Exchequer Alistair Darling announced his plans to boost consumer spending in his 2008 Pre-budget Report on 24 November.
But the VAT cut might prove to be a rather expensive present and one which Britain can ill afford in these times of recession.
The Tory party have criticised Labour’s spending spree harshly, pointing to an already high budget deficit.
To the BBC, shadow chancellor George Osborne (Conservative) said that Mr. Darling was “bringing this country to the verge of bankruptcy” by doubling the national debt to £118bn next year.
Desperate Times
But Mr. Darling was adamant that desperate times call for desperate measures: “In these exceptional economic circumstances, I want to take fair and responsible steps to protect and support businesses and people now.”
And it is not only the opposition parties that are critical of the VAT cut as many consumers are wondering whether a 2.5% decrease in prices will make all that much difference to their wallets.
And will it really make shoppers want to spend more, giving that all-important impulse to the economy we hear so much about?
According to the BBC, the 2.5% decrease will mean that a Mars bar is 1p cheaper, you can buy a JVC LCD television for £12.77 less than before and a pair of Levi’s jeans will be down £1.49.
Even if this doesn’t sound like much in the short-run, I suppose it will add up to a substantial amount over the full 13 months. So far so good.
Unwanted side-effects
There are, however, some negative side-effects to this VAT cut as it also extends to products that, in my opinion, should not be reduced in price.
I am talking of the Sainsbury’s (durable) shopping bag.
Before the VAT cut the shopping bag cost shoppers 10p, a measure taken to discourage shoppers to use the plastic shopping bags in the first place.
To my dismay, whilst unloading my shopping basket, I saw that the shopping bag price had been reduced to 9p. Now where is the point in that?
Given that the Pre-budget report devotes a whole chapter on ‘Delivering on environmental goals’, I believe Mr. Darling might have overlooked this small but obvious discrepancy in his financial plans.
So you won’t hear me saying ‘Thank you Darling’ just yet.
The true Father Christmas will make Sainsbury’s re-think its plastic bag policy (and stop giving out free flimsy plastic bags in the first place).
Posted by ahsvaniwaarden 