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VAT cut 'contributes little' to spending spike

The 2.5 per cent reduction in value added tax (VAT) announced by chancellor of the exchequer Alistair Darling in November has done little to contribute to the recent rise in consumer spending, according to a sector commentator.

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17 December 2008

VAT cut 'contributes little' to spending spike

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Donald MacLeod, head of Sainsbury's credit cards, said 2.5 per cent does not translate into 2.5 per cent off the price of products, suggesting the actual reduction in cost stands at somewhere around 2.1 per cent.

He said he did not believe this would be enough to stimulate customers into a purchasing frenzy.

"That isn't going to be sufficient to make you suddenly think: 'I am now going to buy that item'," Mr MacLeod added.

He stated he believed it may have caused people to delay purchasing items until the VAT reduction came into effect in December 1st.

"But I don't think it is going to make the difference of buying something or not buying," the expert concluded.

VAT will stay at 15 per cent and it will revert to 17.5 per cent from January 1st 2010.

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