Reports indicate the government is considering a temporary cut in
VAT to stimulate consumer demand, possibly targeted at sectors such
as tourism and restaurants. In a new briefing, IFS researchers show
that the case for a temporary VAT cut now is mixed. It could
provide an important fillip to consumer demand if implemented under
the right conditions. But its expiration must be carefully timed so
as not to choke off a nascent recovery. Peter Levell, a Senior
Research Economist, said:...Request free
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Reports indicate the government is considering a temporary cut in
VAT to stimulate consumer demand, possibly targeted at sectors such
as tourism and restaurants. In a new briefing, IFS researchers show
that the case for a temporary VAT cut now is mixed. It could
provide an important fillip to consumer demand if implemented under
the right conditions. But its expiration must be carefully timed so
as not to choke off a nascent recovery.
Peter Levell, a Senior Research Economist,
said:
"If consumer demand rebounds slowly as we emerge from
lockdown, the government will need to think about measures to
stimulate the economy. A temporary VAT cut could play an important
role in a broader mix of policies aimed at boosting output and
employment but only if implemented under the right conditions.
There is little point introducing a VAT cut if continued fear of
the virus, or continued social distancing restrictions, mean that
firms are unwilling to cut prices or consumers are simply unwilling
to spend. The government needs to assess carefully the economic
situation and benefits of specific stimulus measures over the
coming weeks."
