As of today, the 1st December 2008, the government has officially rolled out for a set time, a new VAT rate of 15% as opposed to the old 17.5%.

Immediate thoughts are that on the surface it all seems to be a win-win situation for the consumer, a 2.5% drop in the VAT has to be a positive thing given the current economic climate…right? It should encourage people to spend more…right?

Why drop the VAT rate?
The VAT rate has been reduced, not just to encourage people to buy more, but with the ultimate aim of boosting the falling economy and rescue a lot of businesses which would otherwise be quite likely to go under in the next 12 months.

First thing to note though, is that it is not a 2.5% reduction in the ticket price. It actually equates to an overall reduction of 2.13% if you do the maths.

Secondly, it means that a lot of high street retailers and smaller stores are spending an obsene amount of money changing all the POS, till systems and advertising media to reflect the new prices so as to draw in more customers and show that they have the best deal.

This has therefore resulted in a spate of obscure prices. For example, rather than having a simple £29.99 item, it is now £29.35 meaning stores need to have a lot more easily accessiblechange and it also means if we as consumers pay using cash, will more than likely end up carrying a lot more loose change around.

I don’t know about you, but I’d rather pay the £29.99 and have 1p change, putting the difference back into the economy, than walk with a limp, dragging my leg because its 3kg heavier for all the change.

And before I get people claiming that all the small change adds up…consider that if you say, spend £300 a month on items that incur VAT at the 15% rate…you’ll save less than a whopping £7…

The only time you’d see a significant saving is if you spend tens of thousands…and if you’re spending tens of thousands on items which incur VAT, the difference is probably insignificant to you!

All in my opinion, and generally speaking, of course.

(Oh, and fuel duty has gone up by 2p)