Most retailers plan to pass on VAT hike

The Bank of England says more than 90% of retailers won't be absorbing the VAT hike. But can we really blame them?

by Emma Haslett
Last Updated: 06 Nov 2012
Bad news for consumer inflation: a new Bank of England report has found that more than eight in 10 retailers are planning to pass on the cost of the VAT hike in full to their customers, while another 11% are going to ‘partially’ pass it on. That’s far more than during the previous VAT rise. But given how tough many retailers are finding life at the moment - figures out today that show retailers cut the equivalent of 10,000 full-time jobs during the Christmas period - perhaps that shouldn't be surprising.

The report published by Threadneedle Street today wasn't entirely gloomy; for instance, the manufacturing industry (which suffered heavily during the recession) is recovering well, with factory exports at their highest since records began in 1997 as demand from emerging markets rises.

However, things look pretty rough for the leisure and tourist industries, with consumers failing to ‘make up’ for not spending by going out for meals. And then there's the poor old retailers. Policy-makers had been hoping that most would suck up that extra 2.5% in VAT in order to remain price-competitive. But clearly many don't feel able to to do so. So the bad news for the Bank - and for us poor shoppers - is that this will presumably serve to drive inflation up even further above the Bank's 2% target (remember that?).

But perhaps we shouldn't blame them for being unwilling/ unable to absorb the extra cost in their own margins. Another report out today shows exactly what they're up against: apparently, the high street environment was so tough over Christmas that retailers cut down their employees’ hours by 1.5%, compared to the previous December.

That’s the equivalent of 10,000 full-time jobs, according to the BRC-Bond Pearce Retail Employment Monitor. So although retailers didn't make many redundancies per se, they did reduce working hours and offer less overtime, despite it being supposedly the busiest time of the year. And it may just be a matter of time anyway: according to the survey, a third of retailers are planning to cut jobs before April, more than twice the 13% who made the same prediction this time last year.   

Speaking of struggling retailers, the news just gets worse for ailing JJB Sports - turns out the £455,000 fine it got from the FSA last year was for misleading the market about how much it paid for two acquisitions: the Original Shoe Company (supposedly £5m, but actually there was also £10m in stock) and Qube (supposedly £1, but actually another £6.5m in debts). Surely life is difficult enough at the moment without hood-winking your own investors...

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