The reduction in the UK VAT rate will drive shoppers North of the Border in increasing numbers and cause further problems for retailers in the Republic, Opposition parties said today.
British finance minister Alistair Darling announced this afternoon that the UK VAT rate would be cut from 17.5 per cent to 15 per cent until the end of next year, coming into effect next Monday, December 1st. The lower rate will continue for 13 months before returning to the present level of 17.5 per cent at the beginning of 2010.
Fine Gael and Labour have expressed concern at the reduction while the rate in the Republic is rising from 21 to 21.5 per cent before Christmas. The change means there will be a 6.5 per cent difference between the rate of VAT in the Republic compared to Northern Ireland.
Fine Gael’s spokesman on North/South Cooperation Joe McHugh TD, said the VAT change means consumers can save 30 per cent by shopping in the North and that more cash will seep into the UK from the border regions.
“The huge difference in the rate of VAT between the Republic and the UK, together with the much higher cost of doing business here, is going to wipe out thousands of businesses in the Border areas and make it very difficult for the economy as a whole to trade our way out of recession,” said Mr McHugh.
He said a survey carried out in shops in Northern Ireland showed 40 per cent of shoppers were from the Republic. “The low cost of sterling, together with the imminent reduction in the British VAT rate, will drive this figure further up between now and Christmas,” he added.
Labour’s Joan Burton said the change could “hasten the stampede of shoppers from the Republic to the North and the UK.
“This Christmas was always going to be tough for Irish traders, so many of whom rely on it for the bulk of their sales. Irish businesses are already reeling from the credit crunch and the reluctance of Irish banks to lend to viable businesses,” she said.
“Now to add to their woes, they are losing further competitiveness to our neighbour and nearest competitor. This is a crippling double-whammy.”
Ms Burton said Minister for Finance Brian Lenihan should take the opportunity of the introduction of the Finance Bill in the Dáil tomorrow to drop his “disastrous decision” to increase VAT rates here.
“Given today’s decision of the UK Chancellor to cut VAT, it is now obvious that Brian Lenihan’s proposed VAT increase is one more own goal in a budget that has not stopped unravelling since 14th October,” Ms Burton added.
Retail Ireland, the Ibec group that represents the retail sector, said it was concerned at the UK move, warning that it will make Ireland less competitive.
"The main reason for cross border shopping is the purchase of alcohol because of the lower excise rate. A 6.5 per cent differential in VAT rates is a further stimulus," Torlach Denihan, director of Retail Ireland said. "The consequences for border towns will be very serious.
"As a country we need to look at our VAT rate and consideration should be given to a lower rate as part of a package to stimulate the economy and reverse the decline in retail sales."
