Retailers are set to lose an estimated £2.2 billion in sales during the first quarter of 2011 because of the 2.5 per cent rise in VAT introduced today, according to new research by Centre for Retail Research. Consumer spending will decline by 0.5 per cent year-on-year during Q1 and the tax change will cost each UK household on average £520, finds a new study by online shopping comparison site Kelkoo and the Centre for Retail Research (CRR). The report suggests that costs will be passed onto customers gradually, with only one in five retailers planning to pass the full VAT increase onto consumers by the end of January but 95 per cent expecting to do so within three months.
Speaking for media, Chris Simpson, Marketing Director of Kelkoo, commented: “In the new year, consumers will be left facing an increase in the price of everyday goods at a time when salaries are generally being frozen, and unemployment is rising”. “Retailers have spent the last few months encouraging consumers to ‘shop now to avoid the VAT increase’ which more than third seem to have taken on board.
Big ticket and fashion items are likely to see the largest drop-off in sales with 41 per cent of respondents to the study stocking up on electrical goods, 28 per cent on clothing and shoes, and over 15 per cent on home furnishings and white goods before today’s tax rise.
Following data gathered and published by the CRR, from 4 January 2011, when the standard rate of VAT in the UK will be 20%, raising an extra £13 billion over a year, retailers surveyed as part of the study showed that 64% of retailers would pass on 'most of' or the full amount of the VAT rise in the first month. 98% of retailers would ultimately pass on the whole of the VAT increase to customers.
The Centre for Retail Research estimated that this VAT increase would be passed on in full to the public as increased prices. Thus, it will be seen an increase in CPI inflation by between 0.6% and 0.8%, as well as an increase in costs and prices by £520 per household (family).
Source: http://www.fashionunited.co.uk |
