VAT reduction comes into force
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A 2.5 per cent reduction in VAT which the Government hopes will provide a boost to the ailing UK economy has come in to force.
Thousands of shops and businesses have been scrambling to complete changes to their pricing systems ahead of the reduction of VAT to 15 per cent.
A number of major retailers, including the big supermarkets, have already passed on the reduction in the sales tax to customers, but the majority of shops are thought to have held off.
Chancellor Alistair Darling made the announcement in the Pre-Budget Report that the Government was reducing the rate of VAT for 13 months in a bid to help stimulate the economy.
It is estimated that the change will cost the Treasury around £12.5 billion, while it will save the average earner around £170 a year.
But retailers will face a £300 million bill over the coming two-years as a result of the reduction as they have to change price tags and accountancy systems.
The changes come at the busiest time of year for retailers when most of their staff are needed to serve customers.
And despite the upheaval the change is causing, economists have questioned how successful the move will be in boosting the economy, given that the reduction being passed on to consumers is so small.
Even on big ticket items it is questionable whether the savings will be big enough to get people to bring forward major purchases.
A £550 flat-screen TV will be £11.62 cheaper, while a £300 washing machine will cost £6.38 less, and someone buying a £15,000 car will save about £375.
It is also thought that some people will save rather than spend the extra money they have as a result of the change.
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