Business

VAT rise 'to prompt more Boxing Day shop openings'

Shoppers
Image caption There may be more shops open this Boxing Day to help shoppers beat the 4 January VAT rise

The imminent Value Added Tax (VAT) rise means more UK retailers are set to open on Boxing Day, an industry body says.

VAT will increase from 17.5% to 20% on 4 January.

And the British Retail Consortium (BRC) believes a large number of town centre stores are intending to trade on 26 December - giving customers an extra day to shop at the lower VAT rate.

However, most High Street stores are limited to six hours of opening under Sunday Trading laws.

Many out-of-town megastores selling furniture, electrical, sports and other goods have long planned to open and several will begin heavily-advertised sales on Boxing Day.

Concentrated burst

The BRC says that the imminent VAT rise may also have the effect of squeezing the longer, traditional January sales period into a concentrated burst around the New Year.

More than seven out of 10 retailers polled by the organisation thought that their customers would bring forward purchases to beat the VAT increase.

Their biggest challenge would then be to keep people spending in 2011, as the impact of the rise and public spending cuts begin to kick in, the BRC said.

'Nonsense'

The grocery comparison site mysupermarket suggests VAT at 20% will cost supermarket shoppers at least an extra £33 a year - despite much food being VAT-free.

Much of the rise will be accounted for by price rises for shopping basket staples such as chocolate, drinks and snacks, which are VAT liable. Toothpaste and cleaning products are also among the items which will go up in price.

A survey earlier this month suggested many retailers were planning to use next month's rise in VAT to "mask" more extensive price increases.

The accountancy group KPMG claimed that 60% of retailers and consumer product manufacturers planned to increase their prices over and above the VAT rise.

It added that across all industries, 40% of UK firms planned to do the same though this was based on a sample of just 200 senior managers.

The BRC denied shopkeepers would hide behind the VAT increase, calling the report "nonsense".

image showing different items and one of the three VAT rates.

There are three bands of VAT: zero, 5% and 20%. Many regular purchases such as food and children's clothing are zero-rated. Domestic fuel and wind-turbine installation are 5%. Other things like hot take-aways and televisions are 20%.

image showing three teddy bears marked up at different prices with different VAT rates.

The government has raised the standard VAT rate to 20%. This is the effect that has had on a teddy that previously cost 9.99.

Not good news?

Cold snowy weather in most parts of the UK have distorted usual pre-Christmas shopping patterns, causing a late surge in present-buying.

Provisional figures from Experian indicate that footfall on the High Street was down by between 10-11% on Monday to Wednesday this week, compared with last year.

General industry consensus is that overall festive sales may be the same or slightly higher than last year.

The BRC's director general Stephen Robertson said that if there was little change in sales, that would not be good news.

"Considering inflation is now running at 3.2%, growth of anything less than that would be a real terms fall," he said.

A majority of retailers predict a fall in business in 2011. Their main concerns are weak consumer demand and inflationary pressures.

However, almost half the store owners polled by the consortium said they expected to create jobs in 2011.

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