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The headline grabbing VAT rate reduction announced in the PBR is in fact likely to have little impact. In our opinion, for the average consumer, a 2.5% reduction in VAT is unlikely to convince them to spend where previously they may have saved.

For business too the change is likely to create a number of commercial headaches rather than be a significant stimulus to the economy. This is particularly the case for retailers who now have to deal with some major systems changes to account for the new VAT rate at one of their busiest times of the year. Many retailers are already offering significant discounts to attract shoppers and they will now need to consider how quickly they are able to implement the required changes.

Further details available here (PDF)