Entrepreneurs doubt small firms will pass on VAT cut

“I don’t see how most small businesses will benefit from this,” he says. “I don’t think we’ll get any impact from that. If we look across our retail accounts, there are 25 per cent discounts that don’t have the same impact as they did a year ago; 2.5 per cent isn’t going to do anything and I believe a whole heap of smaller retailers won’t pass the saving on.”

Ferrier believes the administrative burden of changing prices such a small amount will discourage smaller retailers from bowing to Chancellor Alistair Darling’s demand they pass on the saving to consumers.

He says the government would have been better off reducing income tax.

Martin Warner, the founder of new business networking platform Talkbiznow.com, adds that the VAT measure isn’t specific enough.

He says: "Unfortunately in a market where prices are pressed and large discounts are already being passed on, 2.5 per cent isn’t going to be noticeable. Small businesses are already discounting way beyond 2.5 per cent."

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