Christmas isn't coming early

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Paul Lewis on the web

Christmas isn't coming early: Paul Lewis on the pre-Budget report aftermath

VAT is being cut. And just before Christmas. The rate will fall from 17.5% to 15%

Great. I'm going shopping! First stop the off licence.

Hang on. The Chancellor is increasing the duty on alcohol to recoup the cut in VAT.

Never mind. Petrol will be cheaper for that long trip to Aunt Mabel's.

Sorry, the same trick is being pulled – duty up by 2p a litre to offset the 2.5% cut in VAT. And no point in getting the train. There is no VAT on fares so they won’t change either.

Maybe I'll stay at home. At least the cost of heating the front room will come down.

No it won't. The 5% VAT on domestic heating is not being changed.

OK. I'll buy the Christmas dinner – turkey, sprouts, potatoes, sage, onion, celery, cranberry sauce, mince pies, and Christmas pudding.

That won't be any cheaper. Food is generally zero rated – so there's no VAT to cut.

Well at least I can save on presents. Books for my beloved, clothes for the grandchildren, shoes for the baby, a map for cousin John's holiday, a crash helmet for Peter, and some of those nice boxes and candles from the charity shop for the rest. Oh, and I promised Mary a car booster seat for little Jake.

No cuts there. They are all zero rated for VAT too – except the child car seat which is taxed at 5% which won’t change.

What about other shopping – adult clothes, a radio, pans, DVDs, a blender, towels, bedding – and a restorative snack on the way round. Surely they are going to come down in price?

Maybe. VAT is charged on them at 17.5% and it will be cut to 15%. In theory that will bring down prices by 2.13%. But shops like nice neat numbers ending in 0, 5 or 9. So the £4.95 coffee and sandwich deal will not come down to £4.84. Nor will that blender be reduced from £29.95 to £28.87. And pound shops are not going to be offering their entire stock at 98p.

Some prices will fall. But retailers will be tempted to keep some of the cut. The Treasury puts the cost of reprogramming computers, changing cash tills, and reprinting catalogues at £300 million between December 1 2008 and January 1 2009 – when the whole change will have to be reversed.

Thanks, Darling. I didn't know you cared.

* Written by Paul Lewis. Paul is the editor of Saga Magazine's Money News section, a regular financial expert on BBC Breakfast and the presenter of BBC Radio 4's Moneybox. Paul's opinions are his own and for general information only. Always seek independent financial advice.