The body representing 60 chambers of commerce throughout Ireland has welcomed the British government's decision to increase the rate of VAT in today's emergency budget.
Chancellor of the Exchequer George Osborne announced the rate will increase from 17.5 per cent to 20 per cent from January 4th, 2011.
Chambers Ireland chief executive Ian Talbot said the announcement had "the potential to bring real relief to many Irish businesses by further reducing cost differentials between Ireland and the United Kingdom".
"Many economies are only now facing up to the reality of the implications of the global economic issues of the last three years. Ireland recognised them early and is well advanced in dealing with them. The reduction in VAT will help to speed up our economic recovery," he said.
Mr Talbot said the Government must complement the announcement by focusing on VAT and excise fraud, and in particular developing a proactive programme to tackle smuggling and the black economy.
Retail Ireland, the Ibec-affiliated representative body for the retail sector, said the decision to increase the VAT rate had major implications.
"This is a further nail in the coffin of cross-Border shopping, which had already declined significantly due to substantial price cuts by retailers on this side of the border, the 20 per cent reduction in the Irish rate of excise on spirits and the 6 per cent increase in the value of sterling against the euro in the year to date," said director Torlach Denihan said.
Mr Denihan said the UK VAT increase would reduce some of the distortions that contributed to cross-Border shopping, helping preserve the 267,000 jobs in retailing in Ireland.
"However, the retail sector needs to be able to deliver better value to the public through further price reductions. This can only happen if retailers can lower their operating costs. Rents and local authority rates in particular need to be reduced, and pay rates underpinned by the Retail Joint Labour Committee need to be reviewed."
He said landlords and local authorities who had not already done so should cut rents and rates.
The Small Firms Association said the increase in UK VAT was a "welcomed relief" for many small businesses in Border regions.
Acting director Avine McNally said the difference in rates had been a significant contributory factor to cross-Border shopping, which had had a "devastating impact on business".
Ms McNally said high business costs in Ireland meant that many small firms still found it a challenge to offer price reductions to consumers.
The Association of Chartered Certified Accountants wsaid the VAT increase may result in some of the empty retail units in border towns being reoccupied, thereby creating much-needed employment.
"The other main affects for Ireland of the UK budget, is that owners of UK property will be facing an increase in capital gains tax when they sell their property. Capital gains tax has increased from 18 per cent to 28 per cent. The Irish capital gains tax rate is 25 per cent," the ACCA said.
The Belfast office of property group CB Richard Ellis said it broadly welcomed the announcement in the budget that a consultation paper to be published in the autumn will examine changing the corporation tax rate in Northern Ireland. It will also review the reintroduction of economic enterprise zones in the region.
“For a market that is so reliant on the public sector, the pay freezes announced in today’s budget will undoubtedly impact negatively on the Northern Ireland economy," said managing director of CBRE in Belfast Brian Lavery said.
“Increasing the VAT rate from 17.5 per cent to 20 per cent will also have a negative impact on the market in the region and further deter euro shoppers from the Republic from shopping north of the Border.”
Mr Lavery said that while the measures announced today were “painful”, the difficult decisions were necessary “to effectively tackle debt and improve the UK deficit position”.
The Northern Ireland Independent Retail Trade Association said the emergency budget was “bad news for small businesses and retailers”.
Chief executive Glyn Roberts said the VAT increase was “a major mistake and one which will cost Northern Ireland's small businesses and consumers dearly”. He said the VAT hike is a regressive move which will do absolutely nothing to restore consumer confidence and get them spending again. “It could well result in a further drop in consumer spend which could mean more unemployment and business closures," he said.
Mr Lavery said hiking VAT also meant low income families would be hit further when buying goods and services and reduce the impact of the their tax cut announced in the budget.
He said the reduction of corporation tax and the decision to decrease the small companies tax rate to 20 per cent were welcome moves.