The Retail Motor Industry Federation has written to the Chancellor of the Exchequer calling for a reduction in the rate of VAT to 12.5%.
Sue Robinson, director of the RMIF, said: “A reduction in VAT would benefit both consumers and businesses, and give the economy a much-needed boost.
“VAT currently stands at 17.5% and a reduction would reduce retail prices, as well as costs for business.”
Robinson believes a lower rate would also help bring down prices without there being a negative impact on retailers.
She said: “A lower rate of VAT would immediately cut the price of major purchases. By effectively cutting around 5% from the price of a new car, and attendant maintenance costs, our recommended VAT reduction would be a step towards helping to revive the new car market.”