Sunday, 12 April 2009

VAT cuts work!

According to the CEBR, the government's VAT cut in December has worked - with retail sales likely to be £8-9 billion higher this year than without it.

This is contrary to anecdotal evidence from small businesses, but I speak to lots of small businesses and they are not the first people you'd go to for econometric analysis. By their nature, smaller firms find it harder to dissociate the effects of a VAT cut or any other single input from random changes in demand. A number of larger businesses have reported better results from the change, but again they are not in a position to measure the effect across the whole economy.

The CEBR is independent of the government, although they were calling for the VAT cut before it happened, so they have a vested interest in declaring it successful. Regardless of this, the retail figures are certainly good news and point to an earlier recovery than might have been expected.

1 comment:

Nick Drew said...

maybe the CEBR has some truly stonking evidence, but I for one would like to know how they distinguish the effects of increased retail sales following (a) the reduction in VAT of 2.5% (= approx 2.1% price cut), and (b) the very much larger distress-sales discounts that have been on offer over the same period

(see this post of November)