Vats what I think

In a week where Lloyds TSB shareholders voted to buy HBOS and where Royal Bank of Scotland agreed to guarantee business overdraft rates you would think that the governments problems with they economy were starting to clear.

However, the acquisition sorry I mean merger of Lloyds TSB and HBOS is likely to result in around 20,000 staff joining the ranks of unemployed which is growing day by day as one after another business reviews their future forecasts and decides they need to save money by reducing the size of their workforces. The experts have also predicted that there could be around 3 million unemployed people in the UK by 2010 which is a gloomy prediction indeed.

The government are therefore desperate to avoid any sort of a prolonged recession and with that in mind it is likely that they will cut VAT from 17.5% to 15% as a temporary measure tomorrow in an effort to encourage people to spend their money. This would make sense if the shops all passed on the VAT cut without increasing their prices but I fear that many shops will reduce the VAT and simply increase their prices before VAT so that only part of the benefits are passed on to the consumer with the shops taking an increase in profits instead.

If this happens and people do no see any immediate benefit they will save rather than spend their money which will lead to shops selling less and therefore cutting staff numbers further to cut costs leading to more unemployed people who in turn will spend less and the shops will receive less money and a vicious circle will then transpire.

Hopefully this will not be the case and the imminent downturn will be short and swift but I have my doubts.