VAT rise kicks in

(SHARECAST) – Shopkeepers reported a surge in buying in the days after Christmas by shoppers keen to take advantage of the sales and avoid the rise in VAT.

VAT went up at midnight from 17.5 percent to 20 percent to raise an extra £13bn in revenues for the government. The increase also brings the UK more into line with the rest of Europe where the tax is higher in most countries.

Trade organisation, the British Retail Consortium, said seven out of 10 retailers it polled had expected customers to bring forward purchases to beat the VAT increase.

Department store chain John Lewis said sales on 27 December hit a record £27.8m, a 30 percent increase on the store’s previous biggest sales day and 54 percent better than last year, which was a Sunday.

Today, Blacks Leisure said total sales in its Outdoor stores in December were up 12.9 percent, with like-for-like sales increasing by 10.2 percent.

The BRC added that the January sales surge may mean the rest of the year is much quieter. Shopping group Kelkoo predicts sales will fall by £2.2bn in the first three months of the year as a result of the VAT rise.

Some shop bosses have suggested that the increase in VAT may not be that material as it will not add much to the cost of small-ticket items. The overall picture for the economy and consumer confidence is much more important for spending, they argue

Inflation will rise, though, with some economists suggesting it could rise above 4 percent in the next few months due to the VAT increase, prompting the Bank of England to raise interest rates.

A report in the Times also suggested middle-class households will have to pay nearly £600 in extra taxes this year including the extra VAT, while the Telegraph added that businesses may use the increase to lift prices by between 5 percent and 8 percent, or possibly more, further raising the overall inflation figure.