UK VAT cut would bring mixed benefits – IFS think-tank

The Institute for Fiscal Studies (IFS), a leading UK think-tank, warned against a temporary cut in value-added tax (TAX), as it would bring smaller benefits to the UK economy when compared to that in 2008.

Key findings

“A one-year reduction in the rate of VAT last took place in 2008 to soften the immediate impact of the global financial crisis.”

“But the arguments for doing so again were “mixed”.

“Unlike in 2008, businesses’ capacity to meet higher consumer demand is limited by coronavirus restrictions, and people’s incomes have been boosted by a government job support programme.”

“Restricting a VAT cut to the hardest-hit sectors such as hospitality was an option, but would favour richer households who spent more on non-essential services and who were also likely to save money rather than spend it again.”

 IFS researcher Peter Levell said: “There is little point introducing a VAT cut if continued fear of the virus, or continued social distancing restrictions, mean that firms are unwilling to cut prices or consumers are simply unwilling to spend.”

GBP/USD reaction

GBP/USD wavers in a narrow trading range so far this Friday, lacking a clear directional bias.

The spot trades better bid at 1.2418, at the time of writing.