The temporary reduction in the standard rate of VAT has been ineffective in its aim to encourage consumer spending, according to PricewaterhouseCoopers.
Research by the business services giant shows that the drop in the tax from 17.5% to 15% - intended to stimulate the flagging economy - has had little or no effect on the spending behaviour of the vast majority of Britons.
In a recent survey of over 2,000 people, 88% said that the VAT change, instigated in December 2008, had not caused them to increase their outlay on goods and services over the past few months, and the 2.5% decrease in the tax was insignificant to them when compared with distractions such as reduction in income and uncertainty about their economic situation.
Only 8% said they had have spent more as a result of the reduction, with 5% spending a little more and 3% spending a lot more. The remaining 5% of those polled were not aware of the VAT change.
PwC tax partner Stephen Coleclough remarked: ‘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 the VAT increase in January.’
