VAT, otherwise known as Value Added Tax, is charged in the UK on certain goods and services and has become very familiar to Britons. At present, VAT more widely is set at a standard 20 percent rate, meaning spenders will have to pay slightly more on particular products. However, VAT is undergoing a change from today as a result of the Chancellor’s summer statement last week.
This, if successful, is likely to mean the government will not have to offer more assistance measures in the future, thus saving money long-term.
The implications of a VAT cut do have precedent within the UK.
Similar measures have been taken in the past in comparable financial circumstances, and have been proven to work.
In 2008, the Government cut VAT to 15 percent, to counteract the impact of the economic crash.
The then-Chancellor Alistair Darling unveiled a £20billion cash boost to revive the economy, as borrowing soared.
At the time, VAT had been set at 17.5 percent, and the cut was widely welcomed, particularly by retailers.
And it appears many familiar businesses are already taking advantage of the VAT cut by handing down lower prices to their customers.
Nando’s, McDonalds, Wetherspoons and Pret A Manger are among companies who said they would be introducing reductions.
Nando’s stated “100 percent” of benefits from the tax cut would be passed onto customers and Wetherspoons has said price reductions can be expected on meals and soft drinks.
McDonalds has recommended that its franchises cut prices on more popular items and coffee.
However, some businesses will use the VAT cut to recover themselves, so reductions may not always be passed on to customers.
Mr Sunak has also introduced a variety of other measures in his summer statement which are likely to help boost the economy.
Perhaps most tied to the VAT cut, however, is the Eat Out to Help Out scheme which offers restaurant discounts.
In the month of August, Britons can expect to receive a 50 percent reduction up to a maximum of £10 per person.
The government has told businesses the scheme will “incentivise customers to eat in your restaurant, or other eating establishment, giving them a discount which you can then claim back from the government.”