Chaos On High Street As VAT About To Go Back Up

(Daily Mail) – SHOPPERS face a New Year sales nightmare as retailers dither over when to re-impose the full rate of VAT.

The sales tax was slashed to 15 per cent a year ago to boost consumer spending, but will return to 17.5 per cent on New Year’s Day.

Drivers, drinkers and shoppers will suffer an £11billion ‘VAT shock’ – the amount the cut saved them this year.

But while some stores are imposing the increase from Friday, others have decided to hold on until February or even longer to maintain the post-Christmas shopping boom.

Some store chains will operate a two-tier pricing system, with selected goods kept at the current price while others bear the full weight of the rise.

Business chiefs have branded the timing of the increase ‘insane’.

Retailers have been enjoying a bumper sales period, with record numbers of bargain-hunters bucking the recession.

The number of shoppers out on Sunday was up nearly 18 per cent on last year, and the British Retail Consortium said it had seen the strongest start to the post-Christmas sales in years, ‘if not ever’.

The shopping bonanza, expected to total £21.9billion, comes after a desperate year for retailers that saw companies such as Woolworths, Zavvi and Threshers disappear.

Chancellor Alistair Darling temporarily reduced VAT to 15 per cent last December to boost the economy after the banking collapse in autumn 2008.

He has rejected pleas by retail chains for the reduction to be extended.

But several major retailers insisted yesterday they would maintain current prices to keep attracting shoppers. Billionaire retail boss Sir Philip Green said he would be absorbing the cost of the VAT increase at all his Arcadia Group stores, including Top Shop, Bhs and Dorothy Perkins.

John Lewis will not increase prices until February, while Argos is to wait until the publication of its new catalogue at the end of January. This will help reduce the cost of changing all their prices.

The British Retail Consortium estimates that changing prices on shelves and at tills twice in a year will leave businesses with a bill of £500million.

Sir Stuart Rose, executive chairman of Marks & Spencer, has already criticised the January 1 deadline.

He said earlier this year: ‘Increasing VAT on New Year’s Eve is an insane time. If the Government had any sense, they would delay it for a month.’

Marks & Spencer will, however, be implementing the tax rise on Friday. The change will have no effect on the ticket prices for many products, though, as M&S has been implementing the VAT cut at the tills rather than on the shelves.

With VAT returning to 17.5 per cent, the figure that flashes up on the till will now match the amount on the price tag.

Boots and Debenhams have not yet decided when to impose a blanket increase, while Sainsbury’s, Tesco and Boots have indicated that price changes would be phased in rather than delivered in one swoop.

Tesco said it would freeze VAT at 15 per cent on ‘thousands of products’ to deliver £12million of savings. But prices will rise for many other products.

Richard Brasher of Tesco said: ‘The VAT reduction was a welcome relief for millions of shoppers and helped many continue to treat themselves over Christmas. We want to extend this help into the New Year and hope consumers will feel able to bag a bargain and get 2010 off to a great start.’

Sainsbury’s said there would be no price increase on selected goods – including DVDs, home ware and its own brand clothing range – but rises would be imposed on other goods.

DSG International, which owns PC World and Currys, refused to be drawn on its plans. Asda, however, will re-price its goods straight away.

There are fears that higher VAT could drive people away from making major purchases and tip the UK economy into a second recession. The rise will put 2p on a litre of petrol from January 1 and push up the price of a bottle of wine by 13p.

The New Year rise could be a taste of things to come. Both Labour and the Tories are known to have considered raising VAT, possibly to 20 per cent, in an effort to reduce the £180billion black hole in Government coffers.

LibDem Treasury spokesman Lord Oakeshott said last night the double dose of confusion within the space of a year was hard for both consumers and retailers. He warned that the VAT switches would make the economy ‘hard to read’.

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