LAST week’s decision by the government to cut VAT has prompted a strong reaction in the business and channel community.

The latest comment from Brother UK sales and marketing director, Phil Jones, describes the VAT cut as “a sticking plaster that will eventually peel off to reveal an unhealed economic wound.�

He goes on to say: “What business really needed from this pre-budget report was some structural surgery.

“The market is driven by price points and I fail to see how a £99 price point moving to £96.50 will stimulate sales in our sector. All the VAT cut will do is give everyone involved in the channel a short-term headache as they struggle to implement it across their IT and accounts systems.

“We can’t assume that the VAT cut will be passed on because margins are under pressure from other factors such as the devaluation of sterling, which is ramping up import cost prices. So I wouldn’t be surprised if distributors and resellers opt for a simpler approach and maintain price points during the temporary VAT cut and pocket the 2.5 per cent to give them a little bit extra headroom.�

Jones believes that issues concerning credit insurance withdrawal need to be addressed now to stop nervousness in the market.

“The bigger issue facing the sector is the withdrawal of credit insurance, which the Chancellor failed to address. This could be just as damaging to long term trade in the IT sector as the lack of credit being offered to businesses by the banks. As credit insurers increasingly pull cover, it has spread nervousness in the market and is putting the brakes on transactions, ultimately leading to stagnation in the industry. The CBI hit the nail on the head in its ten-point pre-Budget submission when it called for the Government to counter the withdrawal of trade credit insurance and act as insurer of the last resort.�

“One of the few silver linings in the budget was the Government’s commitment bring forward £3bn of capital spending to renew primary and secondary schools, among other investments. This could help to stimulate IT capital expenditure from the public sector,� he adds.

What are your thoughts on the VAT cut, and what can be done to help resellers? Email chorton@bpl-business.com