We've been having an internal debate about the VAT cut: did it work?
A study by the IFS says, yes it did, but I have some doubts about the study (I'll come back to the IFS work in another post).
A poll by PWC says no it didn't. And I have my doubts about that poll.
According the PWC survey, 88% of people said the VAT cut hadn't made them spend more; 5% didn't even know the VAT rate had been cut!
The VAT cut isn't like the scrappage scheme which provides a highly transparent, £2,000 incentive to buy a new car. But the benefit of the VAT cut on any given purchase is small and hidden.
The real effect of the VAT cut is cumulative and relative. It's cumulative because over the year, the cut will provide a boost to households' budgets. And that boost will lead to some additional spending. It's relative because buying things is cheaper this year than it will be next year, so might as well buy it now.
The PWC poll doesn't capture these effects and so you get 88% saying it hasn't affected their spending. That's probably not true. The real impact is likely to be bigger and hidden.
But that doesn't mean the VAT cut was £12bn well spent or that it should be extended.