Cautious consumers fear tax rises

Consumer spending is the main short term driver of demand in the British economy so the expectations and confidence levels within the household sector will be pivotal in determing the speed of any revival in demand during 2010.

The latest Nationwide Building Society consumer confidence index recorded a five point decrease in December to 69 – its biggest fall since November 2008. It seems that people are worried about being hit by higher tax burdens this year as the fiscal squeeze looms on the horizon. Higher VAT (back now to 17.5% and rumoured to be rising to 20% later in the year) and increases in national insurance contributions may be the tip of an ill-concealed fiscal iceberg. House prices are rising and unemployment is rising at a slower rate than feared a year ago. But real disposable income is the dominant factor that determines how much we can spend and the prospects for 2010 do not look good.