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VAT cut unlikely to stimulate consumer spending

Marks & Spencer chairman Sir Stuart Rose has said he will pass on any VAT cut to shoppers, however the overall impact of the cut on consumer spending is expected to be marginal.

Sir Stuart Rose told The Sunday Telegraph that he would pass on the proposed temporary VAT cut of 2.5% to 15%, which the Chancellor Alistair Darling is poised to announce in his pre-budget report later today. Darling is expected to cut VAT in an effort to stimulate consumer spending.

Rose said: "If the Government reduces VAT, then we would absolutely pass it on to customers. Not doing so would be the equivalent of the banks not lending money."

However a 2.5% cut in VAT on clothing would have a limited effect on prices. For instance a Marks & Spencer women's mackintosh, which retails for £80, would have a VAT cut worth £1.70, making its new price £78.30. Other retailers believe that the reduction will confuse shoppers, particularly as much of the high street is already discounting by up to 25%.

Other retailers may choose to pocket the difference, to help ease cost pressures which are likely to build further next year.

Will a 2.5% cut in VAT help stimulate consumer spending? Post your comments below or vote in our poll on the right of the screen.

Readers' comments (1)

  • How To Stimulate Consumer Spending And Jumpstart The Economy

    My survey produced an interesting anomaly--- several respondents felt that excessive consumer spending was the primary cause of the economic problems we face today, and that spending is not to be encouraged.

    But the root problem they were correctly speaking to is the source of the spending money, not the spending itself. Spending is essential for demand creation, and increasing demand is what produces jobs.

    So why we ask, does government remove the dollars from the economy before they accomplish the demand stimulus "thingie" (highly technical economics jargon)? Nearly half the survey responses observed that consumption taxes (The Fair Tax) are far more productive/creative than income taxes.

    The other half wants to replace the IRC (Internal Revenue Code) with a Flat Tax on all forms of income. Both suggestions are simple, and quantum leaps better than anything being seriously considered by congress--- "seriously" being the operative word.

    A combination of the two--- priceless, but later!

    The single, easiest, fastest, biggest, consumer-spending instant winner bonanza is not even a twinkle in an old politician's eye--- there are far too few new politicians. Replace the Social Security Retirement Program with a plain vanilla pension plan, pre-funded by smaller, mandated employee contributions.

    The current methodology is simple: it takes money out of our pockets (and our employers) puts it though governmental blenders, and spits out IOUs for a meager benefit at retirement. Why not let the private sector provide pension benefits to all employees under the direction of a trimmed down Social Security bureaucracy?

    How? By purchasing Social Security Retirement Income Annuities (SSRIAs). Google "A Capitalist's Social Security Reform" for the nitty-gritty details, but here's what we accomplish:

    We stimulate spending immediately by only withdrawing 3% of income from 300 million pockets and pocketbooks, and nothing from employer treasuries. We provide demand-push spending money and reduce demand for consumer credit.

    And, looking forward an article or two, we collect a tax on every dollar spent in the economy--- except those for food, healthcare, and higher education; even from our friends and neighbors in the Underground and Internet economies.

    There are several other ideas on the more-spending-money-in-consumer-pockets agenda, and some thoughts about consumer confidence. It's tough to be confident, for example, when you click the links between congress and business lobbyists.

    It's tough to be confident when we see Wall Street control its regulators, constantly produce the same speculative garbage, and reward its senior employees and sales persons from the carcasses of mutilated shareholder-owners and "hostaged" taxpayers.

    These confidence destroyers can be dealt with, but first the rest of the story, on increasing consumer spending without credit abuse:

    One: Reduce the interest rate on all mortgages at least twenty-five basis points, and adjust monthly payments accordingly. The banks owe us, and will make-up the difference from increased business activity.

    For the rest of the article, please google the title.

    Steve Selengut
    sanserve (at)
    Author of: "The Brainwashing of the American Investor: The Book that Wall Street Does Not Want YOU to Read", and "A Millionaire's Secret Investment Strategy"

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