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What will the VAT increase bring for 2011

With less than a month until the VAT rises to 20% on January 4, retailers are trying to capture as many sales as possible before the impact of price rises and job cuts cause a probable post Christmas sales lull.  For some this means an all out promotional attack with many retailers offering big discounts to get shoppers spending early.

Retailers had been expected to use the beat the VAT message in their advertising pre-Christmas but don’t seem to have done so although discounting is rife. Big ticket item retailers are promoting heavily with many electrical retailers offering big price cuts on large appliances to bring forward purchases.

For smaller ticket item retailers the impact of the VAT rise will have little effect on customers deciding to shop early to make savings, but all retailers are likely to gain from the extra footfall generated by those hoping for a pre VAT rise bargain.

However the impact on sales post Christmas is less predictable. With extra promotional activity bringing forward purchases a lull seems inevitable. Although many retailers would prefer to absorb the rise rather than pass it on to already strained customers it seems unlikely that many, whether large or small, will be able to do so.

Last year’s 2.5% rise – after the year’s reprieve of 15% VAT – had little effect as retailers promoted heavily post Christmas to still rake in the sales. But with retailers now facing rising costs in labour, rates and raw materials as well as VAT it seems price rises are inevitable with some of the UK’s biggest names having already warned of price increases in the New Year.

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