Wednesday February 10, 2010
A new report shows that many retailers have contained the effect of the recent VAT rate increase.
According to a study by the British Retail Consortium and Nielsen, January’s VAT rate increase was lost among the high number of discounts and promotions offered by retailers across the country.
The BRC-Nielsen Shop Price Index shows that non-food price inflation was 1.9 per cent – much lower than expected because many shop owners held off passing the extra costs brought on by the VAT rate increase to their customers.
Weakening consumer demand, spurred on by uncertainty about economic recovery, has stoked fierce competition between retailers, which is also playing a part in keeping shop prices down.
Mike Watkins, senior manager of retailer services at Nielsen, said: “With weaker shopper demand after Christmas and many retailers holding back or absorbing the VAT increase, it is no surprise that the shop price inflation is broadly unchanged this month.”
He added that with many seasonal promotions coming to an end, retailers will have to work harder to persuade customers to part with their cash.
Thursday January 14, 2010
An expert has maintained that supermarkets in Britain have raised their prices exactly in line with the VAT rate increase.
Retail industry publication The Grocer recently claimed that some supermarkets have been using the VAT hike as an excuse to push their prices up more than necessary but according to mySupermarket.co.uk, retail grocery prices are exactly in line with the VAT hike.
"We found that across all four supermarkets – Tesco, Sainsbury’s, ASDA [and] Ocado – prices were up 2.2 per cent, exactly in line with the VAT rise," commented Jonny Steel, spokesman for mySupermarket.co.uk.
He pointed out that the vast majority of groceries such as fresh fruit and vegetables, as well as meat, fish and poultry, are exempt from VAT altogether and so have not been affected.
"In fact, fruit and vegetable prices have been stable for 12 months which is very good news for shoppers," Mr Steel added.
According to the British Retail Consortium, overall shop price inflation was up 2.2 per cent in December.
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Wednesday January 13, 2010
New Delhi’s state finance department has announced preliminary plans to raise the VAT rate on a number of luxury consumer goods in order to raise revenues.
Officials suggest the VAT rate should be raised from four per cent to 12.5 per cent for mobile phones costing more than 10,000 rupees (151 euros) and pens with a price tag of over 5,000 rupees, The Times of India reports.
The proposal was previously suggested but rejected by the cabinet but officials hope the VAT hike is accepted this time round.
A senior finance department official said: "Approximately 96 per cent of all mobiles are priced less than Rs 6,000. Hence anyone who is buying a phone worth Rs 10,000 or more obviously has the ability to pay a higher VAT."
The proposals for higher VAT are aimed at raising enough revenues to deal with a growing budget deficit that is expected to hit ten per cent this year. State officials also plan to remove the VAT subsidy on around 40 items including diesel.
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Tuesday January 12, 2010
A number of British supermarkets have been accused of using the VAT increase to push through further price increases.
Market analysis by Brand View provided to The Grocer magazine found that more than 4,500 of the price increases in the nation’s supermarkets were greater than the VAT rate.
Between December 29th and January 5th, the prices of 12,500 items including snacks, confectionary and household cleaning items were raised in Tesco, Asda, and Sainsbury’s.
Of those price increases, one in five price rises in Tesco were greater than the 2.2 per cent VAT increase, while Asda and Sainsbury’s have opted to phase in price rises over a longer period.
A spokesperson for Tesco said the supermarket increased its prices to higher levels than the VAT rate increase to reflect the higher cost from suppliers.
"We work hard to keep prices down for customers, which is why we have frozen the VAT on thousands of products at the lower rate of 15 per cent," she said.
According to recent figures from the Centre for Economic and Business Research, consumers are expected to be more cautious with their spending this year in the face of the VAT hike.
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Friday January 8, 2010
The VAT rate increase is likely to result in a rise in tobacco smuggling, the Tobacco Manufacturers’ Association has warned.
The organisation pointed out that smuggling could rise by 15 per cent with revenue flooding the black market, causing up to £300 million in revenues to be lost, reports Talking Retail.
Christopher Ogden, chief executive of TMA, explained that when the VAT rate was reduced in December 2008, tobacco and alcohol excise duties were raised, leaving prices largely unchanged, but there is no compensatory reduction in these duties as VAT returns to 17.5 per cent.
"So this is not just a VAT increase, it is effectively a tax on a tax," Mr Ogden said.
"As a result, the price of a pack of 20 cigarettes will rise by up to 18 pence, the largest single increase in ten years."
He explained that this "stealth tax" could also increase organised crime especially considering the adverse economic climate.
Shadow business secretary Kenneth Clarke recently hinted that the VAT rate could be increased even further if the Conservatives win the next general election.
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Friday January 8, 2010
The introduction of the 17.5 per cent VAT rate will cause a "damper" to retail sales in the initial part of the year, according to Centre for Economic and Business Research (CEBR).
The consultancy firm said many retailers have pre-empted the VAT rise and are going to continue their sales throughout the early January period and keep charging their customers at the 15 per cent rate.
Benjamin Williamson, economist at the CEBR, said some of the biggest concerns for retailers in 2010 will be dealing with more cautious consumers who will not be spending as much as they did last year.
"[Consumers] are much more savvy and aware of the game now that they have seen heavy discounting over the last year or so," he said.
"They will be paying back much more debt, they are not buying as much, and won’t have as much to borrow off of the price of the house."
According to the monthly BRC-Nielsen Shop Price Index, overall shop price inflation was up 2.2 per cent in December 2009.
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Wednesday January 6, 2010
Anticipation of the VAT increase to 17.5 per cent shook consumer confidence last month, according to new figures.
Nationwide Building Society said its consumer confidence index dropped by five points to 69 in December – the biggest drop since November 2008.
The company pointed out that the VAT hike hit hopes of rapid economic recovery, with one in three (34 per cent) consumers saying they expect an improvement in six months’ time – down from 41 per cent in November.
Martin Gahbauer, chief economist at Nationwide, said consumer confidence may continue to dwindle this year as stimulus measures are withdrawn.
"The five-point fall in confidence in December suggests that an element of caution may have begun to creep back into the minds of consumers over the Christmas period," he said.
The Centre for Economics and Business Research recently revealed that department store John Lewis bucked the trend of weak consumer confidence, with sales volumes at the retail outlet robust in the first two weeks of December compared to flat growth levels during the same period in 2008.
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Monday January 4, 2010
UK retailer Littlewoods is seeking around £1 billion in VAT refunds from tax authority HM Revenue and Customs (HMRC), it has emerged.
The company, which is now part of Shop Direct, is claiming the amount as part of a court case in which the government is alleged to have breached European Union law more than ten years ago, the Financial Times reports.
The claim is centred on the argument that VAT refunds should be calculated using compound interest instead of simple interest.
Littlewoods’ claim alone would represent one-fifth of the £5 billion HMRC has set aside for tax refunds.
Leslie Allen, head of tax litigation at law firm DLA Piper, said there are a number of other large claims up to the value of £600 million.
"We think there are a few thousand claims in the High Court, including a large number from local authorities," he told the FT.
Last month, major bingo operator Rank launched a claim for £16 million in overpaid VAT from HMRC.
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Tuesday December 15, 2009
New figures show that retail sales are up by more than ten per cent in London’s West End as shoppers rush to beat the VAT hike in January.
According to the New West End Company, which represents retailers in Bond Street, Oxford Street and Regent Street, sales in the West End were up 10.6 per cent year-on-year in November, compared to a slight 1.8 per cent rise across the rest of the country.
The New West End Company’s sales index revealed that sales in November were also up on October, which saw a 10.3 per cent year-on-year increase in sales.
Jace Tyrrell, head of the New West End Company, said many stores in the West End are reporting that TVs and luxury items are selling well, with retailers saying the presence of international shoppers is helping to increase luxury sales.
"It’s reassuring to see the sales index backs reports from retailers that sales are still strong and growing further in the lead up to Christmas," he said.
Department store John Lewis recently recorded its best ever week, with sales of £110 million nationally in the seven days to Saturday.
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Tuesday December 8, 2009
Reversing the VAT cut is unlikely to negatively affect consumer recovery, a retail boss has said.
Laurie McIlwee, finance director of Britain’s biggest retailer Tesco, said the VAT increase to 17.5 per cent in January will not derail consumer spending but any further hikes could cause shoppers to think again before spending on the high street.
Speaking to Reuters, Mr McIlwee said any VAT increase above 17.5 per cent would knock consumer confidence just as it was beginning to rebound and put a strain on their budgets.
He pointed out that Tesco’s sales of non-food items such as electricals, clothes and toys are now growing as strongly as food and the retailer’s high-end Finest range has also returned to growth, which suggests consumers are beginning to spend again.
Speaking to the Guardian, John Lewis managing director Andy Street, recently said that a substantial VAT hike could prevent the economy from recovering from the recession and would widen Britain’s financial black hole.
