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The Chartered Institute of Taxation (CIOT) has been assessing the impact on possible expenditure after the Chancellor's announcement that the standard rate of VAT will be reduced from 17.5% to 15% on 1 December 2008. On the basis of the figures, the CIOT estimates that those earning £20,000 or less per year will save about £2.50 per week in VAT, which they could spend on extra goods and services. Those on higher incomes of £60,000 per year or above will have about £6.50 per week more to spend, again if they spend the same way and the same amount as before.
Andrew Hubbard, CIOT Deputy President, says: "The CIOT had previously commented that VAT is one tax measure that is quick to introduce and was a likely candidate for use if the Government wished to embark on a fiscal stimulus. Whether it achieves its aim depends in a large part on the response by businesses and consumers. They have no legal obligation on them to pass on the benefits of the VAT cut to consumers, whether in whole or part of a rate reduction."
The CIOT has looked at a range of household expenditures based on statistics produced by the Government in 2007. It is important to note that many assumptions have to be made in order to assess the effect. These figures are indicative and depend on spending behaviour.
Table
Annual income* Estimated weekly expenditure** VAT savings per week***
20,000 321 2.50
40,000 547 4.50
60,000 826 6.50 * Annual income
** National Statistics Family Expenditure Survey and includes expenditure not subject to VAT
*** Assuming patterns of spend remain the same and the amount could be slightly greater or slightly less depending on the basket of goods and services consumed
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