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.
Retail is the sector set to benefit most, with over half (58%) of those likely to increase some spend using the cash to purchase items such as clothing, electrical goods and home and DIY products, the research notes. High street and online stores could benefit from increased spend almost equally, with shares of 51% and 49% respectively.
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 and 58% of these increasing spending in retail, British retailers could look forward to a potential cash injection of up to £11.2bn.
NFU Mutual retail sector specialist Frank Woods commented: “The encouraging sign is that there is clearly an appetite for increased spending in retail 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 £2.2bn could be ploughed into British retail business. With other announcements such as increased infrastructure spending seen as more likely, whether this opportunity can be delivered to customers and benefit UK retail businesses remains to be seen.”
18-24 year olds were cited as being most likely to spend (78%), with retail set for a boost as the extra cash would be most likely spent on the high street (20%) and online shopping (26%).
Frank added: “There is however no guarantee that the spending power of consumers will be ploughed back into UK businesses. Our research showed increased online spending in 24% of people, which could include spending on imported goods from around the world. While the overall Autumn Statement is expected to support growth, any boosts such as a cut in VAT could also be offset by increases in other taxes, meaning that savings aren’t necessarily felt.”
