David Cameron backtracks on VAT promise!
David Cameron has broken one of his "loose" general election pledges with an increase in VAT from 17.5% to 20% from 4 January 2011. However, unlike the scare mongers would have you believe, there will be no VAT introduction for children's clothes, magazines and other exempt areas. While the increase in general VAT to 20% at the beginning of 2011 is a blow and will affect every area of the UK economy it should raise significant money for the UK government to reduce the budget deficit in the short to medium term.
Quite how this increase in VAT will affect the retail market remains to be seen as UK retail spending has been very volatile over the last few months. However, for many UK retailers this could be the straw which broke the camel's back and push weaker businesses over the edge and potentially out of business. The difference between the larger retail outlets in the UK and the smaller operations will become more evident if, as we have seen in the past, many of the larger corporations look to delay the introduction of VAT increases to attract the attention of consumers.
Time will tell whether there is a major difference in retail spending in the UK because of the proposed VAT increase although how many of us knew the rate of VAT before this budget?
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