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Wednesday, 25 August 2010 |
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 Next January’s VAT increase to 20 percent will have a relatively small impact on retailers, reports the Retail Bulletin. The impact should even provide a short term boost to the sector, according to the KPMG/Synovate Retail Think Tank (RTT).
Despite the timing of 4th January 2011 presenting an extra burden for retailers at their busiest time of year, it provides valuable time to plan and allows pre- and post-Christmas promotional strategies to be implemented, which could provide a short term fillip to sales and a positive short term impact on margins, although some of this will be offset by the cost of making the change.
But while January was chosen for the VAT rise as it was hoped that inflation would be under control and falling by then, with the recovery gathering momentum, the RTT warns that this may not necessarily be the case.
Helen  Dickinson of KPMG said: “Retailers’ need and desire to increase prices in advance of the rise, in order to protect margins which have been severely affected over the past two tough years, may have an impact upon the headline inflation figures. This, coupled with rising food prices and the additional supply led pressures already in the market, will create pressure for interest rates to be raised. Such a scenario would create a far more dramatic squeeze on consumer income which in turn would threaten spending levels far more significantly than the VAT rise in isolation.”
According to the RTT, retailers, suppliers and consumers are all set to share part of the pain of the VAT rise, either through margins being squeezed or, in the case of consumers, through lower disposable income, reduced volumes or quality of products consumed. Retailers have no choice but to pass more than half of the cost to consumers and, due to the highly competitive nature of the industry, absorb the remainder themselves or share it with suppliers.
Image: VAT
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