Despite the rise in VAT to 20%, retailers have given a qualified thumbs-up to much of what was set out by the Chancellor yesterday.
Both the BHF-BSSA Group and the British Retail Consortium say that the 2.5% hike set out in George Osborne’s emergency Budget will hit jobs, dampen consumer spending and economic growth and rack up inflation.
But, trying to avoid destabilising growth, the Chancellor has allowed six months before the VAT increase comes into effect on January 4 next year.
“It could have been implemented tomorrow,” BHF-BSSA Group pointed out, “so January 4 may well herald a bleak midwinter, but might provoke a consumer boomlet and a happy Christmas in the run-up to the new year.
“Retailers would have preferred to undertake the massive repricing exercise, if they had to do it at all, after the new year sales and ideally as late as April, but at least they don’t have to get the pricing guns out right now.”
“Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise for retailers,” commented the BRC. “Planning for catalogues is a particular nightmare.
“The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult – but retailers would rather have more notice than less. Six months to prepare is better than the rise coming in this summer.”
Head of retail & wholesale at Barclays Corporate, Richard Lowe, said that the announced rise in VAT would come as no surprise to retailers, “who have been planning for an increase and looking at cost bases and price points since January.
“Bringing in the change on January 4 will mean the crucial Christmas trading period is protected. It will also, hopefully, help stimulate sales between now and then as shoppers bring planned big-ticket purchases forward before the change”.
Accountants and business advisers BDO LLP said that for manufacturers and wholesalers, the VAT rise would impact on cash flow rather than translate as a real cost.
“But for retailers, the issue is the extent to which they will pass on the tax to the consumer or absorb some of this themselves and for how long?”
BHF-BSSA Group said there was much that would appeal to small businesses in the Budget: “Cutting corporation tax, capital gains tax changes, particularly the increase in the entrepreneurs’ relief limit to £5m, National Insurance support for new businesses outside London and increases in personal allowances will all receive a warm welcome from retailers.”
And the BRC agreed. Director general Stephen Robertson said that the National Insurance exemptions for new businesses “will be useful as they start trading. This is the time in their development when they are most vulnerable and most in need of help.”
And he added: “Lowering corporation tax will support private sector investment and entrepreneurship. It also sends a positive message to the rest of the world that the UK has a competitive tax system which makes it a good place in which to do business.”
However, he warned that reducing capital allowances for plant and machinery would hurt retailers’ cash flow.
“Like manufacturing, retail is a capital intensive sector,” he said. “Taking more money from retailers will hit investments. Anything which tips the balance against plans for marginal stores should be avoided. However the delay in introduction until 2012 is welcome.”