Chancellor Alistair Darling has confirmed in his pre-budget report that VAT will return to 17.5% on January 1, 2010.
The move had been widely expected by retailers, although some were trying to persuade the Government not to impose it on January 1.
VAT was reduced to 15% last year as Darling introduced a range of measures in an attempt to prop up the UK’s ailing economy and a crisis in consumer confidence.
In his November 2008 pre-budget report Darling announced that the 15% rate would start on December 1, 2008 and would revert to its original rate after December 31 of this year.
British Retail Consortium (BRC) director general Stephen Robertson described the news as a “relief” but added that “repricing tens of thousands of items is a mammoth task for retailers, at the busiest and most important time of year for most of them.”
The BRC has also welcomed the news that retailers will now have four weeks instead of two to update thier prices.
The Association of Convenience Stores (ACS) chief executive James Lowman said however that retailers are exceptionally disappointed. “The date of the increase does not give retailers adequate time to implement the changes over the holiday period. The immediate cost of the change will exceed £8m across the convenience sector industry.”
ACS had also called on the Chancellor to rebalance tobacco and alcohol duty – which was adjusted upwards in last year’s pre-budget to account for the decline in VAT - and to reconsider the decision to raise national insurance for employers in 2011.
Robertson concurred: “This is madness. The Chancellor should have said he’s scrapping the increase already announced not adding to it.”