Page last updated at 22:05 GMT, Monday, 24 November 2008

Southern shoppers 'to head north'

VAT will be cut from 17.5% to 15% for 13 months

The cutting of VAT from 17.5% to 15% will have a "massive impact" on the level of cross-border shopping, a leading economist has said.

Professor Mike Smyth said it would result in record numbers of southern shoppers travelling north.

Professor Smith said the savings to be made on Christmas shopping could justify a family travelling from as far away as Dublin up to Newry.

In the west, shoppers could travel from as far as Galway to Enniskillen.

The cutting of VAT to 15% for a 13-month period was announced by Chancellor Alistair Darling on Monday as part of the pre-Budget report.

VAT cut by 2.5 percentage points
45% tax rate on earnings over 150,000 from 2011
All National Insurance to go up by 0.5% from 2010
Economy to shrink by up to 1.25% next year
Borrowing to hit record 118bn
Phased increase in vehicle excise duty

It will leave the rate in Northern Ireland more than 6% lower than in the Republic.

"The reduction in VAT, along with the fact we're already in discount mode, is going to have a huge effect on cross-border shopping," said Professor Smyth of the University of Ulster's School of Economics.

"If you consider somewhere like Argos - all their catalogue's prices are going to be outdated so they're going to be bringing out leaflets on which the prices will be slashed.

"That's going to have a psychological impact, with people wanting to make sure they're also benefiting from the bargains to be had.

"And if people find the traffic is too busy around somewhere like Newry, they'll travel on to Lisburn, Belfast, wherever.

"It's going to impact across the board, and white goods, such as washing machines, were already much cheaper up here anyway."


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Retail Ireland spokesman Torlach Denihan warned the VAT cut would have "very serious" consequences for border towns in the Republic.

"It makes Ireland less competitive in comparison to our nearest neighbour (and) will compound the problem of people crossing the border to shop," he said.

"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."

However, Taoiseach Brian Cowen said that as a smaller economy, the Republic had less "room for manoeuvre".

The Chancellor said the VAT cut would put about 12.5bn in consumers' pockets.

However, shoppers will not be able to take advantage of cheaper drink, as duty on alcohol, tobacco and petrol will permanently rise to offset the 2.5% VAT cut.

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