Jimmy Devins (Sligo-North Leitrim, Fianna Fail)

While the United Kingdom VAT reduction will have some effect on price differentials between UK and Irish goods, the reduction in the value of sterling will have a greater impact on the price of goods in the North than the VAT differential. Moreover, as the British Government is increasing excise duties on alcohol, cigarettes, petrol and diesel to offset the 2.5% VAT reduction on these items, the UK budget change will not enhance the attractiveness of these items to cross-Border shoppers.

In addition, approximately half the value of goods and services purchased in the State are not subject to the standard VAT rate and therefore are unaffected by the recent budget changes in Ireland and the UK. For example, all Government services, local authorities, hospitals, schools and so on are exempt from VAT. The majority of foodstuffs, oral medicines, books and children's clothes and shoes come under the zero rate of VAT. Furthermore, the 13.5% reduced rate of VAT applies to housing, electricity, gas, domestic fuels, restaurant services and labour intensive services such as hairdressing and shoe repair.

The latest Central Statistics Office bulletin for October shows that consumer prices continue to fall, with overall annual inflation at 4%, down from 4.3% in September. This compares with an annual rate of 4.2% for the United Kingdom all-items retail price index. With regard to the retail sector, the Tánaiste and Minister for Enterprise, Trade and Employment requested Forfás in September to carry out an analysis of the relative cost of doing business in various locations in the Republic, Northern Ireland and Britain. The Minister has already commenced discussions with a cross-section of retailers on the preliminary findings of the study. We are committed to promoting competition and raising consumer awareness in order to drive competition for goods and services traded domestically. We are also tackling administrative burdens with a view to keeping costs for enterprises under control. Ireland's cost competitiveness is also supported by relatively low taxes on labour and enterprise.

With regard to services, both the services sector and the growing services element within manufacturing companies are vital to the next stage of our economic performance. We recently carried out an evaluation of the specific needs of the services sector. The report of the services strategy group, Catching the Wave: A Services Strategy for Ireland, was published on 12 September 2008. This report will guide the development of our services strategy into the future to exploit the opportunities available in this sector. A particular focus of the strategy is on locally traded services. It is increasingly recognised that local services are a significant source of wealth creation and employment in their own right, as well as providing essential underpinning for internationally trading business and for social and cultural development. My Department is working with the enterprise agencies and with other Departments to progress the implementation of the report's recommendations.

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