The UK has today announced in the Chancellor's Summer Statement that it will cut its standard VAT rate from 20% to 15% until 31 December 2020. This is designed to give consumer confidence a boost as the COVID-19 lockdown eases. The UK has already spent £49billion in public support.
The UK announcement by Rishi Sunak follows last month’s news of a cut in the German headline rate from 19% to 15% between 1 July and 31 December 2020. Many other countries have cut their reduced VAT rates to support the hospitality and tourism sectors. See all major COVID-19 VAT rate cuts
2008 Labour’s VAT cut to 15% limited benefit
The UK Labour government temporarily cut VAT from 17.5% to 15% between 1 December 2008 and 31 December 2009. This emergency measure was implemented to support consumer confidence as the 2008 financial crisis gripped the country. It was estimated to cost around £12bn.
Shoppers canvassed at the time by a number of organisations overwhelmingly said it had no impact on their expenditure. Retailers, when surveyed, gave a similar response. Only 20% of them claimed to have not passed the reduction on.
The Conservative / Labour coalition went on to raise the VAT rate from 17.5% to 20% in 2011 to help reduce the government's deficit.
