VAT cut had 'no effect' on spending

The Government's temporary 2.5 per cent cut in VAT has done nothing to encourage consumers to boost their spending, the head of one of the country's largest fashion retailers said today.

Next chief executive Simon Wolfson said the cut had helped restrain price increases, but as a measure designed to get people buying more, it had "no effect whatsoever".

Mr Wolfson said the £12.5 billion measure had been a "missed opportunity" and suggested income tax cuts would have been a better way to increase consumer confidence as people would have more disposable income.

But he said that despite the economic downturn, there was "some good news on the horizon" in terms of price falls on food, fuel and mortgage rates.

In the Pre-Budget Report in November, Chancellor Alistair Darling announced the 13-month VAT cut from 17.5 per cent down to 15 per cent as part of a fiscal stimulus package to inject new vigour into Britain's economy.

But Mr Wolfson told BBC Radio 4's Today programme: "I think it was a missed opportunity.

"I think if it was designed to make sure that prices don't go up in the year ahead, then it will have some effect. Iit will definitely have some effect in restraining price increases.

"If it was designed to boost expenditure, then it really has had no effect whatsoever.

"The main problem is confidence, people are worried about their jobs.

"If they were to have received that money directly, let's say by way of an income tax cut, then that would have given them the confidence that there was some more money in the bank and they would have had all these price cuts coming through on food, fuel, mortgages and that would have helped boost public confidence."

He suggested ministers should look to business to see how Government could continue to save money by becoming more efficient.

He said: "There is a false argument here that the only way Government can save money is by cutting services.

"Every business in this country over the last year, my own included, will have saved money without harming their services.

"We have picked our stock in more efficient ways in our warehouses, Next have saved millions of pounds doing that.

"It is simply not good enough for Government to say 'In order to save money we have to cut services'.

"They, like the rest of us, can save money by becoming more efficient and pass the benefits to the economy by way of lower taxes."