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VAT rise confusion for shoppers

1:33pm Tuesday 29th December 2009

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Shoppers are facing confusion over January's VAT increase as retailers adopt different approaches to the tax hike.

A number of high street chains are delaying increasing their prices in line with the VAT change from 15% back to 17.5%, while others are only imposing the rise on certain products.

VAT was cut to 15% in December last year in a bid to boost consumer spending during the economic downturn at an estimated cost to the Government of around £11 billion.

But commentators have warned that the increase back to 17.5% could deter shoppers and stifle the economic recovery.

The Centre for Economics and Business Research estimates that the VAT cut helped boost consumer spending by £6.8 billion, but it warned that retailers could expect a tough spring due to the increase in the tax and rising inflation.

But many groups have said they will not pass on the VAT increase to consumers through higher prices immediately.

Department store group John Lewis has said it will not raise prices in line with higher VAT until at least the beginning of February.

Sir Philip Green has gone further and said he will absorb the cost of the VAT increase at all of his Arcadia Group stores, which include Top Shop, Dorothy Perkins and Miss Selfridge, as well as Bhs.

Argos is delaying any price increases until the end of January, when its new catalogue is published, in order to reduce the costs associated with the change.

But Homebase, which along with Argos is part of the Home Retail Group, will be raising VAT on its goods from the beginning of January, although it stressed that because VAT was only one element of pricing, it did not expect prices to increase immediately.

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