British set to bring VAT rate closer to Republic’s

THE British government could announce plans this week to bring its VAT rate closer to the Republic’s, in a move that may deter shoppers heading North.

Britain’s chancellor of the exchequer, Alistair Darling, in his pre-budget report (PBR), which will be announced tomorrow is expected either to hike the VAT rate to 20% or signal plans to do so.

The VAT rate in Britain is due to increase from 15% to 17.5% from the start of next year.

However, retail industry figures as well as accountants expect a larger VAT hike.

Irish retailers have suffered over the last year as a result of shoppers in the Republic heading North. The VAT rate in Ireland stands at 21.5%, after the government hiked it by 0.5% last year. The 21% standard rate had been in operation since March 1991 with the exception of a reduction in 2001.

By EU standards Ireland ranks among the high VAT rate jurisdictions.

In last year’s PBR, Mr Darling cut VAT from 17.5% to 15% in an attempt to stimulate consumer spending. The cut is due to expire on New Year’s Day, but the chancellor could push the date back or even increase it further. Ernst & Young has predicted that he may consider extending the discount for another three months, then claw back the money by setting VAT at 20% when it is reimposed.

Retail Ireland spokes-man Torlach Denihan said the VAT cut in Britain has had “very serious” consequences for border towns in the Republic. “It makes Ireland less competitive in comparison to our nearest neighbour. As a country we need to look at our VAT rate and consideration should be given to a lower rate as part of a package to stimulate the economy and reverse the decline in retail sales.”

Minister for FinanceBrian Lenihan has been put under pressure by retailers to cut the rate of VAT. However it is unlikely he will do so in tomorrow’s budget.

Chambers Ireland chief executive Ian Talbot said: “The Government must give serious consideration to reducing VAT and excise rates sooner rather than later to stem the flow of job losses in the retail sector.”

He said 30,000 jobs have already been lost in the retail industry this year.