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Spending 'hardly affected' by VAT cut

Consumer spending was hardly affected by last year’s reduction in VAT, a survey has revealed.

Consultants PricewaterhouseCoopers said 88% of the 2,000 consumers surveyed said the cut from 17.5% to 15% did not encourage them to spend more on either goods or services.

Respondents said the Government’s £12bn VAT cut from last November’s pre-budget report was insignificant compared to other economic factors, adding that economic uncertainty and salary cuts influenced their spending more.

Only 8% of those surveyed said they spent more because of the cut, while 5% were unaware that there had even been one. The cut in VAT is set to be reversed on January 1.

Stephen Coleclough, tax partner at PwC, said: “These figures show that, despite it being designed as an economic stimulus, the vast majority of consumers’ spending has been unaffected by the VAT cut.

“The rest of the year will demonstrate whether the cut can still have the desired effect. It will be interesting to see whether consumer spending is affected by retailers potentially bringing forward their new year sales in anticipation of a VAT increase in January.”

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