With the public finances in such a chaotic state it’s no wonder the Tories are reportedly considering increasing VAT to 20% if they come to power.
Such an increase, on top of the 2.5 percentage point rise retailers are already facing at the end of the year, would be hugely unpopular with retailers and run the risk of derailing what by then is still likely to be a fragile recovery.
But for a new government in fiscal dire straits, the temptation to act quickly, while the old government is still recent enough for them to be able to take the blame, could easily prove overwhelming. There is a precedent, when Margaret Thatcher raised VAT in 1981 – also at a time when the UK was coming out of recession.
The retail industry needs to make clear to the Tories exactly the damage a 5 percentage point VAT rise in six months would do to a sector that is the engine room of the UK economy, and a creator of jobs.
That may not be enough to head off a VAT rise some leading Tory supporters in retail see as inevitable. But if it does happen, at the very least, the industry should demand that, as with Labour’s VAT cut, the rise should be temporary with a set timescale, and should be balanced by measures to encourage consumer spending – such as taking more of the lower-paid out of the tax system, for example.
Nanny state tactics
Turning to the present government, while you’d think it might have better things to be getting on with, it seems hell-bent on restricting retailers’ freedom to trade with an endless barrage of nanny state policies.
Proposals to restrict the availability of buy one, get one free offers are a great example. The Government doesn’t like bogofs because they add to food waste. But neither consumers nor retailers are mugs. They know that a bogof doesn’t represent good value if the free product ends up in the bin.
That’s not to say that some products aren’t wasted, but there are much bigger fish for the politicians and retailers to fry. Some supermarkets have been turning away from bogofs anyway in favour of more obviously better value promotions, but that shouldn’t mean they are removed as an option in the grocers’ promotional armoury.