Consumers hit the high street in quest for bargains ahead of rise in VAT

NEW Year's sales and the looming VAT rise led to a weekend spending spree across high streets in Scotland, as shoppers searched for a last-minute bargain.

Stores have reported increased business ahead of the 2.5 per cent hike on Tuesday, while many cut prices by up to 90 per cent to lure in shoppers put off by arctic conditions throughout December.

John Lewis has reported record takings of 27.8 million for last Monday, up 54 per cent on the same day last year and up 30 per cent on the previous record set two years ago.

Fiona Moriarty, director of the Scottish Retail Consortium, said the week between Christmas and New Year provided shoppers and businesses with a brief window of opportunity before the VAT rate hits 20 per cent.

"There are some fantastic bargains out there at the moment," she said. "We've seen one of the busiest trading periods between Christmas and Hogmanay in recent memory.

"I anticipate that the January sales will also be extremely busy as shoppers snap up bargains before the VAT increase."

The VAT rise will add an estimated 158 a year to bills for the average household, according to uSwitch.com.

The increase will be most noticeable on high-cost goods, such as televisions and washing machines, leading to Argos, Comet and Dixons as well as DIY chains Homebase and B&Q holding last-gasp attempts to bring in shoppers before the rise.

Richard Hyman, strategic retail adviser at Deloitte, said that "pent-up demand" from shoppers had led to a busy weekend, adding that many retailers had been left with more stock than expected as a result of the pre-Christmas snow.

Along with the VAT rise an increase in fuel duty, which came into effect yesterday, will see drivers hit with a double tax blow. The net effect will be an average increase of 3.55p to a litre of unleaded petrol and 3.64p to diesel.

Prices on 4 January are estimated to be 126.42p for petrol and 131.70p for diesel - against 107.74p for petrol and 109.46p for diesel last January.

Professor Stephen Glaister, director of the RAC Foundation, said: "It is a bleak mid-winter for motorists with already record petrol prices set to rise significantly.

"Given each penny increase in fuel duty raises about an extra 500m for the Exchequer, it is easy to see why the Chancellor is tempted to send up rates.

"But if the nation's 34 million motorists are pushed too far, they will drive less and the Treasury could actually see their tax take fall."

The fuel increase also comes as a levy on Britain's banks that will raise 2.5 billion a year and discourage "risky practices" also came into effect yesterday.

The banks are to pay a 0.05 per cent levy in 2011, rising to 0.075 per cent from 2012. The government says it balances the potential perils the banking sector poses to the economy.