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Implication of changes
The change in the standard rate of VAT from 17.5% to 15%, whilst costing the government a lot (£12.4 billion!)
is unlikely to make an enormous difference to the volume of high street sales.
If retailers pass on the full reduction to consumers the 2% reduction in prices is unlikely to make much difference
to consumer behaviour amid all of the 20% off sales and '3 for 2' offers that are already available on the high street.
Also, bearing in mind that the majority of food items, childrens' clothes, etc are zero-rated, the effect on
low-income families will not be very great.
Retailers who do not pass on the reduction will experience an increase in gross profit margin, which will be very welcome
as margins have been under pressure for some time due to higher transport costs and the strong euro.
Given the difficult position that most retailers are in, that is to be welcomed.
Expensive items such as cars may benefit most from the VAT rate reduction. The motor industry has been hard pressed to
sell new cars, and obtaining finance for new car purchases has become more difficult as banks tighten their lending criteria.
In many cases dealers have been offering finance themselves. The value of second-hand cars is likely to reduce further.
So there are opportunities for consumers who have money to spend on cars, boats, new kitchens and the like, particularly
as the returns on their savings continue to shrink.
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