Pre-Budget Report 2008: VAT

24 November 2008

As widely predicted, the Chancellor reduced the standard rate of VAT by 2.5 per cent from 17.5 per cent to 15 per cent, a move he is entitled to make under EU law.

The reduction takes effect as from 1 December and will remain in place until 31 December 2009 when it reverts to the old rate.

Zero-rated or reduced rate items are unaffected by the change.

The government’s hope is that the temporary cut will encourage consumers to loosen purse strings. The Chancellor expressed the wish that retailers pass on the savings to shoppers as quickly as possible.