Will VAT rise put brakes on our recovery?

Dec 30 2010 by Vicky Robson, The Journal

Next week will see the Government raise the rate of VAT in a bid to bring billions of pounds into the national coffers. But with warnings that the rise could contribute to a stalling of the recovery, Vicky Robson takes a closer look at what it will mean for families in the North East.

WITH families struggling to survive job losses, cuts in services and rises in the cost of living, a 2.5% rise in VAT will not be welcome.

The measure announced in the Government’s emergency Budget in June will come into force on Tuesday, and has been described by Chancellor George Osborne as a long-term change to the country’s tax regime needed to help tackle the huge deficit faced by the country.

But for many small businesses in the North East, the rise is expected to dampen trade at a time when families are already struggling with wage freezes and other pressures on their budgets.

One family which runs a garage in Northumberland is braced for sales to “die” in the first few weeks following the VAT rise.

Julie Stephenson, company director of Citroen dealer Cookswell Garage, in Pegswood, near Morpeth, is anticipating a slow start to the New Year.

She said: “We expected to be very busy in December and to sell quite a few cars , because we thought people would buy before the VAT rise.

“Unfortunately, because of the snow, that hasn’t been the case and we haven’t had the customers we thought we would have had.”

Citroen have implemented a VAT freeze on some of their smaller models, which Ms Stephenson said would help during the first quarter of next year, but believe their business will suffer as soon as the new rate comes into force.

Ms Stephenson, who runs the business with her two brothers and niece, added: “For about the first six weeks I think we will probably be very quiet.

“People still need to get their cars serviced, but I think car sales will die for the first few weeks, as they are going to be that much dearer.

“So I think it will be mid-February when business might start to pick up again, when everybody has got used to the new prices.

“It’s the big items people are going to see more of a difference on.”