Research from commercial insurer NFU Mutual has found that two thirds of consumers could increase spending on the high street, weekends away in the UK and eating out if a reduction in VAT is announced in the Spring Budget, set to be announced on March 8.
Retailers would be 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. High street and online stores would benefit from increased spend almost equally, with shares of 51% and 49% respectively.
NFU Mutual retail sector specialist Frank Woods said: “The encouraging sign is that there is clearly huge appetite for increased spending in UK retail and tourism sectors, and that many people see VAT relief as an effective means to inspire it.
“As business rates, Brexit and rising inflation continue to put immense financial pressure on businesses, the Chancellor has the opportunity to ease some of those concerns at the Spring Budget. A cut of VAT by just 5% could encourage consumer spending in retail with anywhere up to £11.2bn and tourism with up to £10.3bn, although whether the opportunity can be delivered to benefit UK businesses remains to be seen.”
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.
18-24 year olds are most likely to increase spend as a result of a VAT cut in general (78%), with the high street (20%) and online shopping (26%) for products including clothing and electrical goods most likely to benefit. Of spenders, 13% would take a weekend break in the UK, while 25% would most likely increase spend on food and drink shopping.
Frank added: “There is of course 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 Spring Budget 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.”