Retailers warn end of 15% VAT will cause chaos

Published on Saturday 28 March 2009 16:13

THE Government is considering extending its 15% VAT policy amid warnings that it will expire at the "worst possible time" for retailers.

The previous 17.5% rate is due to be reinstated on January 1 next year but retailers are pressing Chancellor Alistair Darling to rethink the deadline in next month's Budget.

They say changing the rate in the middle of the Christmas holiday and at the beginning of the January sales will cause further chaos for businesses and shoppers, and they are hoping for an extension of at least a month to allow them to recover from the festive sales period.

Fiona Moriarty, director of the Scottish Retail Consortium, said: "We are having ongoing discussions with the UK Government in terms of when the best date for retailers and customers would be. They are responsive to our concerns. What we are all clear on is that the current proposed date in January would be extremely difficult to deal with."

In its submission to the UK Government ahead of the Budget on April 22, the Scottish Council for Development and Industry (SCDI) warns retailers will struggle to change their prices, tills and accounting software in time.

"We hope the Government will see sense on this and common sense will prevail," said Niall Stuart, spokesman for the SCDI. "Not only would that mean extra time for the VAT cut to stimulate spending, it would also avoid a huge amount of hassle for retailers at the most busy and most important times of the year."

The 2.5% VAT cut was one of the flagship policies in Darling's pre-Budget Report last November. He claimed it would put 12.5bn into the pockets of shoppers at a time when anxiety over the economy was crushing high street sales.

But economists questioned the value of the move, saying the money could have been better spent stimulating other parts of the economy.

The latest research from the British Retail Consortium showed sales continue to fall, with figures for February down 1.8% compared with the previous year.

Retailers complained that the VAT cut, which was introduced on December 1 last year, was a logistical nightmare. Reports have since emerged of some businesses not bothering to pass the saving on.

Last week, Stephen Byers, the former Labour Cabinet minister, questioned the move, and said: "I do now question whether it has run its course both in terms of its overall benefit to the economy and in relation to the political return that comes to the Government."