Cut in VAT 'boosts retail sales'

The controversial decision of the government to reduce VAT for a limited time has actually proved to be of benefit to the economy, a research group has claimed.

According to the Centre for Economics and Business Research (CEBR), the reduction of the tax from 17.5 to 15 per cent has already resulted in £2.1 billion extra of retail sales, the BBC reports.

Introduced last December in response to the credit crunch-induced economic downturn, the tax cut is scheduled to last for 13 months.

The reduction - which is thought likely to cost the Treasury over £10 billion in lost revenue - has been criticised by the Conservatives and some financial analysts for being financially wasteful.

However, the CEBR claimed that the VAT change was such a success that it should be extended from January to July 2010.

’There was an immediate boost to the volume of retail sales after the cut was introduced,’ the group was quoted as saying by the broadcaster.

’The rise in retail growth is even more remarkable given the economic context over this period.’

In total, the CEBR estimates that retail sales will be boosted by up to £9 billion in 2009.

This will have a knock-on effect on overall economic output for the UK, making an early recovery from the downturn more likely.ADNFCR-2318-ID-19119334-ADNFCR