Will the VAT reduction work?

All the papers this morning expect Alistair Darling to cut VAT tomorrow.

Agian the move shows just how serious the governemnt feels the economic outlook to be.

The chancellor is constrained by the European union rules which mean that the cut will be limited to 2.5%.

The move will be seen as a way to boost pre Christmas sales in the shops following a week of bad retail data

Estimates are that this will cost anything between £12-18b and of course at some point the rate will need to be put back up.

Will it work?Jim Pickard thinks that it may not

Many household products - food, newspapers, children’s clothing - are already exempt. Fuel is paid at much lower rate.
As for products on which VAT does apply: would people be more likely to buy a fridge/hi-fi/wardrobe if it costs £115 instead of £117.50?

and furthermore

there were deep discounts (typically 20 per cent) taking place this week at M&S, Debenhams, Dorothy Perkins, Wallace, BHS, George at Asda and House of Fraser - amid fears of imminent corporate collapses elsewhere in the sector.