Yesterday, it was reported that the government were considering a temporary cut in the standard rate of VAT from 20% to 17½% to provide some relief from the cost of living crisis. There’s much to be said for this both in reducing the pressure on household budgets and giving hard-pressed businesses a little financial headroom.
However, people need to be careful what they wish for. Something very similar was done in December 2008 as a response to the financial crisis, when the standard rate was reduced from the then 17½% to 15%. However, at the same time the rates of alcohol, tobacco and fuel duties were increased to offset the VAT cut, as it was felt that buyers of these “undesirable” products should not benefit. But when VAT was restored to 17½% in January 2010, the duties were not cut again, resulting in what was in effect a stealth increase.
If the same were to be repeated this time, it would represent a kick in the teeth for the hospitality trade and negate much of the benefit. At least it would probably be politically impossible to raise fuel duty when prices are at record levels, but the poor old smokers would no doubt end up being kicked in the wallet yet again.
If any such policy is announced, it will be very important to read the small print below the headline.