Diners paying big VAT for their Big Mac

Published on Sunday 25 January 2009 20:23

CONSUMERS are missing out on government measures designed to boost customer spending as major high-street brands fail to pass on the VAT rate cuts in their stores.

Chains including McDonald's, Edinburgh Woollen Mill, Poundland and music seller HMV are among those refusing to allow their customers to benefit from the government's 2.5 per cent cut in VAT to 15 per cent.

The news comes after a Scotsman investigation last week revealed that staff at garden centre chain Dobbies were told they should try to "pacify" shoppers asking about the reduction, and offer it to them only if that fails.

Retail leaders said that while companies could not be forced to pass on the cut, they would encourage them to do so for the benefit of both the consumer and the individual business.

A spokesman for HM Revenue & Customs said: "Government is calling on all businesses to pass on the tax reduction to consumers through lower prices, but ultimately decisions on prices are for businesses rather than government."

Fast-food chain McDonald's told The Scotsman that it had discounted only its extra value meals, while HMV said it was reducing its prices through special offers and savings, but was not offering a 2.5 per cent discount across the board.

Teresa Farren, senior customer services adviser for McDonald's, said: "Instead of taking 1p or 2p off individual items, we have taken 5p or 10p off our extra value range.

"They are our most popular items, so we wanted to give customers better value on those products." She added that the company had not had many complaints from customers.

A spokesman for HMV said: "HMV has followed the approach adopted by other retailers of converting the minor VAT reduction into major savings for our customers.

"Independent of the many hundreds of products that are on promotion at HMV each and every month, we have been passing on the VAT saving by focusing price reductions and value offers on a number of lines."

The chain said it was directly passing on the 2.5 per cent cut on its games consoles and iPods.

Discount chain Poundland claimed it cannot change the price of its products due to the nature of its business – which prices all products at a flat rate of 1. But it added that it welcomed the VAT cut, saying it had increased its promotions such as "two for one" offers.

Edinburgh Woollen Mill failed to provide an official explanation for its failure to pass on the cut, but one member of staff said they had been told by management that the company "tried to keep its prices down" but "couldn't afford to do that with the VAT".

Fiona Moriarty, director of the Scottish Retail Consortium, said most of the organisation's members had passed on the cut.

She said: "They saw that it was the right thing to do and realised it was important not only for the customer, but for the business."

FACT BOX

ALISTAIR Darling, the Chancellor, cut the standard rate of VAT from 17.5 per cent to 15 per cent until the end of this year to help increase customer spending. While some saw the reduction as a welcome boost for the flagging retail sector, critics claimed the cut was too little, too late.

Although the government is encouraging companies to pass the rate cut on to consumers, it is not compulsory to do so.