Britain VAT Rate

From December 1, 2008, Britain had a 15% VAT rate. The original VAT rate was 17.5%, and in January, the VAT rate will return to it’s original price. According to BBC’s Working Lunch programme, 23% of people said that they spent money that they usually wouldn’t have spent if it wasn’t for the VAT rate. Also, 27% of people said that they would start putting forward a little money before January. One third of the people polled said that they would not spend as much when the VAT rate comes back. More men than women said that they took advantage of the VAT rate. Statistics show that the sales in October went up. Many people took advantage of the lowered VAT rate. Unfortunately, there is absolutely no sign of an extension.

In the graph above, it is shown that the VAT rate in elastic. In the original VAT rate, the quantity was at Q1 and the price was at P1. After the new VAT rate, the quantity went up to Q2 and the price went down to P2. As shown in the graph, as the VAT rate went down, the demand went up, and more people started spending more money.


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