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A cut in VAT could plough billions into UK businesses

14th November 2016 Print

Research from commercial insurer NFU Mutual has found that two thirds of consumers would increase spending if a reduction in VAT is announced in the Autumn Statement.

A cut in VAT by 5% could provide the average UK adult with extra spending power of £547 per year. With NFU Mutual’s research showing that 67% of consumers would increase some spend as a result of VAT savings, British businesses could look forward to a potential cash injection of up to £19.3bn.

Retail is the sector set to benefit most, with over half (58%) of those increasing some spend using the cash to purchase items such as clothing, electrical goods and home and DIY products. High street and online stores could benefit from increased spend almost equally, with shares of 51% and 49% respectively.

Paul Shattock, commercial sector specialist at insurer NFU Mutual, said: “The encouraging sign is that there is clearly an appetite for increased spending amongst consumers.

“With consumer spending coming under some pressure from rising inflation, the Chancellor’s decision to ‘reset’ fiscal policy could possibly include the option of cutting VAT by as much as 5% to support growth. Our research suggests that even in a more probable situation of a 1% cut, up to £3.9bn could be ploughed into British business. With other announcements such as increased infrastructure spending seen as more likely, whether this opportunity can be delivered to customers and benefit UK businesses remains to be seen.”

The research found that over half of respondents that would increase spending (53%) would spend in UK hospitality industries on weekend breaks in the UK, eating out and hobbies and leisure. Over a third (36%) of spenders would increase spend on grocery shopping, for instance at the supermarket.

18-24 year olds were most likely to spend (78%), with the high street (20%) and online shopping (26%) for products including clothing and electrical goods most likely to benefit.