No drama over VAT rise

We’ve been speaking to a lot of retailers about yesterday’s Budget, and particularly the increase in VAT, and no-one seems particularly worked up about it.

Perhaps it’s because we’d all long since resigned ourselves to the rate going up from 17.5% to 20%, but no-one seems to think it will derail the retail recovery and everyone has had time -and has six months more - to prepare for the increase.

That six month window gives retailers an opportunity not just to get their systems ready - a big issue for many businesses, especially those which produce catalogues - but also to boost sales by urging customers to buy now to beat the increase. January 4 isn’t an ideal date for the rate to go up - it’s better than January 1, but still falls right in the thick of the Sale period. February 1 would have been better.

People like HMV and Mothercare will be relieved that books and children’s clothing respectively haven’t been clobbered with VAT, and the grocers will be breathing a sigh of relief too following suggestions that food, most of which is VAT exempt, might be hit too, possibly with a “Fat Tax” on less healthy foods.

Retailers are pleased that the government is taking firm action on public sector spending, but is also conscious of the need not just to cut but to stimulate the economy too. In truth, other factors - like the weakness of the pound against the dollar and rising costs of product, particularly in fashion - will weigh far more heavily on non-food retailers and would have led to price increases whether or not there had been a VAT increase.