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Finance Bill

Again, I am grateful to my hon. Friend. I am sure that the Minister will have taken that question on board and will be able to provide us with some answers. The same question goes for the Republic of Ireland, although the devaluation of the pound over that period may have also played a part. A number of countries engaged in a fiscal stimulus, because they were in a stronger position and could afford to do so, but they did not go down the route of the VAT cut. There are also some practical points to be made about VAT, some of which were raised in the quotations that I have cited. First, at a time of sharp discounting of goods—that was certainly the circumstance last November and last December—the 2.5 per cent. reduction in VAT could have been lost. That point was made by a number of commentators. In particular, when Justin King, the chief executive officer of Sainsbury's, appeared on "Question Time" on 27 November, he said:""If we walk down the high street today you'll see 20 per cent. off, 30 per cent. off, 50 per cent. off, so really in that context it's a drop in the ocean."" That is one of the problems with the VAT cut. The second problem is one of practical difficulties. There were practical difficulties with the sudden decrease in VAT at a time when shops were certainly hoping to be busy. There had to be re-pricing with very little notice and we know that that caused difficulties. In some cases the VAT cut was not necessarily passed on. In other cases, people were sitting in shops with calculators deducting the necessary amount, which also created difficulties. There were real costs involved in changing the system so quickly. Retailers were not exactly overjoyed at being faced with what was, after all, a tax cut. There are other technical difficulties involved. For example, those businesses operating under the flat-rate arrangements will not have felt the benefits of the change. There were significant practical difficulties. At the big picture level, what was the test that the Government set themselves by reducing VAT? At the end of November, their argument was, "Thanks to the measures that we are introducing in the pre-Budget report, the recession is going to end earlier than it would otherwise do. It is now going to end in the second half of 2009." Sadly, that is not going to be the case, although there are clearly some encouraging signs, and we hope that they will continue. The Government now accept that recovery will not happen until the end of the year. The test that they set themselves was to use the VAT measure to bring the recovery forward. They have had to downgrade their growth forecast for 2009 from the contraction of 1 per cent. of GDP predicted in the pre-Budget report to a contraction of 3.5 per cent. as set out in the Budget. Even that figure is optimistic compared with the projections of the likes of the International Monetary Fund. I am sure that the Minister will refer to the Centre for Economics and Business Research and to Doug McWilliams' comments; he does so every time I debate this matter with him. Doug McWilliams has supported the VAT cut; indeed, he recommended that policy proposal in November. Having recommended it, he has subsequently looked at it again and concluded that he was right all along. His assessment states that retail sales over the December to February period were £2.1 billion higher than they would otherwise have been. We do not necessarily accept that, however. We need to disentangle the impact of the VAT cut from the effect of the very substantial cuts in interest rates over the same period, alongside the policy of discounting that shops were adopting, as we heard from Justin King. Even then, the Government's figures show that, in the period from December to February, the policy was costing the taxpayer something in the region of £3 billion.