Could UK follow Germany with VAT cut to tempt shoppers back to stores?

By

Sandra Halliday

Published
Jun 15, 2020

As UK shopping locations reopen on Monday, there have been suggestions that the government could introduce a temporary cut in VAT in order to encourage shoppers back into stores.

Survey after survey has shown a high level of caution among consumers about shopping in physical stores again and there are concerns that many stores will close if footfall stays low.

Chancellor Rishi Sunak has hinted at a temporary VAT cut, The Times reported, which would be particularly useful for retailers as it would allow them to lower prices without having to introduce discounts that would dent their margins.

There's been no official announcement around VAT cuts so far but it has been reported that Sunak’s looking at either a targeted reduction in VAT or a blanket cut. 

Any reduction in VAT would echo measures taken in Germany where the sales tax has been temporarily reduced from 19% to 16%. UK VAT was set at 20% in 2011 when it rose from the previous standard rate of 17.5%.

The news comes as Prime Minister Boris Johnson has called on UK consumers to “come back to the shops” and said that people can “shop with confidence” as he praised the measures that retailers have taken to keep their staff and customers safe during a visit to Westfield in London. 

The PM is also under pressure from business leaders to relax the two-metre social distancing rule. Doing so would have a big impact on retailers and also on the pubs, cafés and restaurants that are important for attracting consumers to areas with a high concentration of retail stores.