VAT to Increase in the New Year.

Late last year, the standard rate of Value Added Tax (VAT) was temporarily cut from 17.5% to 15% in an attempt to support Britain's flagging economy

UK consumers have now become accustomed to the current rate of 15%. However, on 1 January 2010, it is scheduled to return to its former level. The British Retail Consortium (BRC) believes that VAT's planned reversion in the new year will take place at the "worst possible time." The BRC estimates that the temporary cut in VAT cost the struggling retail sector around £90 million to implement at short notice and that the reintroduction will come at an exceptionally busy time for most retailers, ie: when post-Christmas sales are in full swing. But did the cut work?

Just a few months after it was implemented, the Centre for Economics & Business Research (CEBR) estimated the reduction had helped boost retail sales by £2.1 billion in its first three months. However, a poll undertaken by the Federation of Small Businesses in February 09 suggested that 97% of companies believed the VAT reduction had actually had "no impact at all".

Some analysts are now predicting a rise in demand for bigger ticket items as January approaches and consumers seek to beat the deadline. However, whatever the rate, an ongoing lack of credit, combined with the prospect of higher taxes and cuts in public spending, is likely to hold back consumer confidence anyway, longer term.