Forthcoming VAT Rise Could Hit Car Industry

10 September 2010, 16:47

Most people are aware by now that the rate of VAT is going to go up fairly soon from 17.5% to 20%. This could have a pronounced effect on sales – especially where the items for sale have a large ticket price.

This certainly looks set to happen with the car industry. Apparently sales have slumped recently anyway, and they could slump even further once the new higher rate of VAT kicks in. Sales in August 2010 were not good, and although these results were not a big surprise they did little to make the industry look positively towards the future.

However there is one glint of hope in the poor sales figures. If people are aware the rate of VAT will rise by 2.5% in January, they are more likely to buy a new car before that date. If they leave it too long the price they pay for their car will be significantly more than it would have been otherwise.

Reports state that August is never a busy month for car sales anyway. This is probably largely down to the school holidays and lots of people going away for the summer. But the real question is whether the forthcoming VAT rise is going to lead to more sales towards the end of the year. If people are struggling to find the cash for a car, are they likely to forego it altogether or will they simply leave it until the last minute to buy?

It will be interesting to see what happens during November and December in this respect. Whatever the rate of VAT may be, the fact remains that a new car is an expensive purchase. Even the cheapest models cost several thousand pounds and with the economy as it is at the moment it is difficult to see how many people could justify the purchase.

We still have four months to go until the new VAT rate comes into effect though, so let’s see what happens during that time. Christmas is not that far away and this could be another factor that influences how well – or badly – the car industry does.

VAT will affect other sectors as well, because people might seek to buy things earlier than they would otherwise to get away without paying the additional 2.5%. We shall be watching to see what happens and how the future pans out.