As widely predicted before the Pre-Budget Report, the Chancellor confirmed that the standard rate of VAT is to be cut by 2.5% to 15% - the lowest level allowed under EU law - with effect from 1 December 2008 in a bid to get consumers spending again. The reduction will apply for 13 months, returning to 17.5% from 1 January 2010. The new VAT fraction will be 3/23.
Only standard-rated sales are affected. There are no changes to sales that are zero-rated or reduced-rated for VAT. Similarly, there are no changes to the VAT exemptions.
Described by the BBC as part of an emergency package aimed at kick-starting the economy, this is part of the package which Gordon Brown was referring to when he promised "substantial" measures in the PBR to stimulate economic growth.
The CIOT estimates that those ear...