At the same time that the VAT cut of 2.5% comes into force on 1st December Gordon Brown will swipe it away again from drinkers increasing alcohol duty to compensate. When the VAT saving comes off again at the end of 2009 the duty rise stays in place. According to the Pre-Budget Report:
The Government will increase the overall duty on alcohol from 1 December so that the total VAT and duty remain broadly unchanged following the reduction in VAT to 15 per cent. The increase in duty will be maintained when the VAT rate is returned to 17.5 per cent in January 2010.
If you look at table 1.2 on page 10 you will see that the total VAT saving of £12,400 billion between 1st December and the of March 2010 is paid for in large part by extra taxes on smokers and drinkers that they have already started paying. Some £3.3 billion (or 27% of the total VAT saving) will be paid for by smokers and drinkers. Funny how this line didn’t get in Darling’s speech.