THE Christmas lights are on, peak Christmas shopping has arrived and for many, this week is the last pay day before Christmas but this weekend could prove to be a quiet weekend in the town for retailers.

Following the Government's announcement that VAT will be cut by 2.5 per cent as of Monday, many shoppers may be discouraged from hitting the shops until prices drop when the cut takes effect.

The Government described the temporary cut, announced in the pre-budget report this week as part of "exceptional measures" needed to save the UK from a deep and long-lasting recession.

Effective until December 31, 2009, VAT will be cut from 17.5 to 15 percent, with the intent that this will benefit many people and boost spending.

Some businesses in the town welcomed these cuts.

A spokeman from Elphicks said the store believed that it would give a "modest but welcome boost to sales".

"While changing all of our prices at our busiest time of year will be a mammoth task, we are keen to pass on the cut to our customers and will be implementing the changes as quickly as we can."

Alexandra Obolensky, director of gift boutique Obolensky's in East Street, was similarly pleased with the announcement.

"Customers will benefit from the VAT price reductions we will implement from December 1," she said. "However, the key factor this year in buying presents at Obolensky's is that we have either kept prices at the same level as last year and even reduced some; and our choice is greatly expanded."

Paula Beaumont, owner of Purity in Downing Street, said she hoped to pass on even greater savings than the 2.5 percent to her customers.

"We're actually going to pass the reduction on to our customers and we're thinking of doing a five per cent reduction but there's just a bit of work to do in terms of re-programming tills and computers and things like that," she said.

"If it encourages people to come into the shop then I think it's a good thing, my concern is it's just going to end up costing me money because of accountancy fees and things like that."

Not all were so welcoming of the news however and remained unconvinced that it would encourage consumer spending.

Ashley Dacombe, from Computer UK, in The Woolmead didn't think the 2.5 percent reduction would make a big difference.

"Dropping the VAT down doesn't mean to say everyone is going to spend all the money that they are earning, so its going to make no difference at all."

East Street Cycles owner, Gary Bird agreed, describing the cut as a "nightmare".

"I think it's a rubbish idea," he said. "They're just building up more debt for the future and the other thing as well is if they really wanted to help people they could have cut VAT completely on fuel bills and that would have given more people money in their pocket."

While cuts don't come officially into force until December 1 some of the large nationwide chain stores have announced that they will begin the price cuts in advance of the weekend in order to avoid the risk of people holding off their Christmas shopping until the cuts come into force.

This was something Mr Bird too was debating at East Street Cycles. "We considered putting a sign in the window and offering the cuts from today. This is pay day weekend for a lot of people so in theory you've lost this week's trade from the announcement Monday to the first, so we're considering doing it now but even then I can't see hundreds of people rushing in."

Jo Aylwin, president of Farnham Chamber of Commerce, commented: "Although any initiative to boost the economy is welcome, I cannot see that the change in the VAT rate will stimulate trade.

"It is not enough to make people who are spending money feel that they have a significant saving and from a business point of view will create all sorts of headaches just dealing with the administration.

"Businesses need the Government to have a more imaginative approach and to take a stronger hand with the banks in which we, as tax payers, now have a large interest."