Entrepreneurs react to Darling’s VAT changes 

Early days, for sure. But entrepreneurs aren’t responding excitedly to the cut in VAT announced by Alistair Darling.

E-mails to the Times are already pointing out drawbacks and complexities in the Chancellor’s measures.

Best one to date from Lynn Lewis, chairman of Nauticalia:

In our shops for the past few weeks we had been trading 10 per cent down on this time last year, until an anticipated VAT reduction was leaked. Our shop sales then fell to 40 per cent down on the day, because hardly anybody went shopping when there was an expectation everything would be cheaper a few days later.

Everybody thinks that a 2.5 per cent reduction in VAT will mean a 2.5 per cent reduction in the price. It doesn’t. It works out at a 2.13 per cent reduction. Ask a young shop assistant to work that one out when a customer is waiting at the till.

The excellent Steve Parks, writing ahead of Darling’s speech, reckons that the Chancellor has duped the business lobby groups. Here’s what he has to say:For years they’ve been complaining about VAT as just more red tape, an admin cost to their business… And yet, secretly, they’re well aware that it actually provides a cash flow boost to their businesses. When their customer pays them it includes a 17.5% tax. They hold onto this money for up to 3 months before they then have to pay it to HMRC – giving them extra cash in the business than they’d otherwise have.

And for another thing, he argues:

If you saw that slogan: "MASSIVE SALE: 2.5% off for the next 6 months or so!", would you cross the road immediately to go and shop your heart out?

 

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