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| Version 1 | Version 2 |
|---|---|
| Lower VAT rate comes into force | Lower VAT rate comes into force |
| (about 5 hours later) | |
| Thousands of shops and businesses across the UK have lowered their VAT rates from 17.5% to 15%. | Thousands of shops and businesses across the UK have lowered their VAT rates from 17.5% to 15%. |
| Chancellor Alistair Darling announced the cut in his pre-Budget report in a bid to encourage consumers to spend more and boost the economy. | Chancellor Alistair Darling announced the cut in his pre-Budget report in a bid to encourage consumers to spend more and boost the economy. |
| It is estimated the change will cost the Treasury around £12.5bn and save the average earner around £170 a year. | It is estimated the change will cost the Treasury around £12.5bn and save the average earner around £170 a year. |
| But retailers say it will cost £300m during the next two years to cover the expense of implementing the change. | But retailers say it will cost £300m during the next two years to cover the expense of implementing the change. |
| The 2.5% cut will last until 31 December 2009. | The 2.5% cut will last until 31 December 2009. |
| Mr Darling had urged retailers to pass on the reduction as soon as they could and a number of major stores, including John Lewis and Tesco, implemented the change early. | Mr Darling had urged retailers to pass on the reduction as soon as they could and a number of major stores, including John Lewis and Tesco, implemented the change early. |
| DSG International, owner of Currys, PC World and Dixons.co.uk, passed on the cut in full at midnight on the day Mr Darling announced the measure. | DSG International, owner of Currys, PC World and Dixons.co.uk, passed on the cut in full at midnight on the day Mr Darling announced the measure. |
| 'Unwilling' | 'Unwilling' |
| BBC business correspondent Joe Lynam said that with many retailers already slashing prices to lure shoppers in the run-up to Christmas, a small reduction in price tags may not have the desired impact. | BBC business correspondent Joe Lynam said that with many retailers already slashing prices to lure shoppers in the run-up to Christmas, a small reduction in price tags may not have the desired impact. |
| He said: "Just as banks were slow to pass on interest rate cuts, retailers might be unwilling or unable to pass on VAT cuts." | He said: "Just as banks were slow to pass on interest rate cuts, retailers might be unwilling or unable to pass on VAT cuts." |
| Richard Dodd, from the British Retail Consortium (BRC), said although VAT had been reduced by 2.5%, the impact on prices would be an actual reduction of 2.1%. HOW VAT CUT AFFECTS PRICES Mars bar - down 1pJVC LCD television - down £12.77Levi's jeans - down £1.49Next suit jacket - down £3Ford Focus - down £322 | Richard Dodd, from the British Retail Consortium (BRC), said although VAT had been reduced by 2.5%, the impact on prices would be an actual reduction of 2.1%. HOW VAT CUT AFFECTS PRICES Mars bar - down 1pJVC LCD television - down £12.77Levi's jeans - down £1.49Next suit jacket - down £3Ford Focus - down £322 |
| He said: "Most retailers, especially major retailers, will be passing this reduction on, but I think they won't necessarily all be taking the 2.1% off the price. | He said: "Most retailers, especially major retailers, will be passing this reduction on, but I think they won't necessarily all be taking the 2.1% off the price. |
| "Some will concentrate the reduction in a more targeted way, reducing certain items by more. | "Some will concentrate the reduction in a more targeted way, reducing certain items by more. |
| "Some may also reduce the price at the till, rather than reducing the price displayed on the shelves." | "Some may also reduce the price at the till, rather than reducing the price displayed on the shelves." |
| Last week, his colleague, the BRC's director general Stephen Robertson told the BBC: "Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year. | Last week, his colleague, the BRC's director general Stephen Robertson told the BBC: "Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year. |
| "I don't think it do a great deal in terms of producing extra sales for our business" | |
| "IT system changes and replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task. | "IT system changes and replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task. |
| "Small retailers will find all this particularly difficult to accommodate."Your tax questions answered | "Small retailers will find all this particularly difficult to accommodate."Your tax questions answered |
| The Department for Business Enterprise & Regulatory Reform's code of practice allows companies to pass on the reduction at the till for two weeks into December - and it is believed that many smaller firms will take advantage of this. | The Department for Business Enterprise & Regulatory Reform's code of practice allows companies to pass on the reduction at the till for two weeks into December - and it is believed that many smaller firms will take advantage of this. |
| The Treasury said that the cheaper products are part of a package of measures which, taken together, should boost the economy. | The Treasury said that the cheaper products are part of a package of measures which, taken together, should boost the economy. |
| Our correspondent said: "But with the budget deficits set to reach £118bn next year, these VAT cuts might prove to be a very expensive gamble." | Our correspondent said: "But with the budget deficits set to reach £118bn next year, these VAT cuts might prove to be a very expensive gamble." |
| HAVE YOUR SAYHow on earth is a 2.5% cut going to make any odds when most of the shops are offering far bigger discounts and that doesn't seem to be working?John, BedfordSend us your comments | HAVE YOUR SAYHow on earth is a 2.5% cut going to make any odds when most of the shops are offering far bigger discounts and that doesn't seem to be working?John, BedfordSend us your comments |
| The government has already admitted that some small businesses could also be worse off as a result of the new rate. | The government has already admitted that some small businesses could also be worse off as a result of the new rate. |
| Firms which take advantage of the government's flat-rate VAT scheme will now only keep a lower proportion of the VAT they collect from customers. | Firms which take advantage of the government's flat-rate VAT scheme will now only keep a lower proportion of the VAT they collect from customers. |
| HM Revenue & Customs said that firms would benefit from paying a lower VAT rate on their expenses. | HM Revenue & Customs said that firms would benefit from paying a lower VAT rate on their expenses. |