Well it was widely predicted that Vat would increase in the Emergency Budget and so it has turned out to be the case.
Frankly given the parlous state of the economy the chancellor George Osborne has had to take some drastic measures.
The increase to 20% Vat tax is said to raise around £13bn a year for the government coffers.
What impact will it have from an independent retailers perspective?
On the plus side the increase has been deferred until 4th January 2011. This is the time when historically most retailers will see price increases from their supply chain. As a result the Vat increase will probably be masked by the normal increases to an extent.
Retailers and suppliers will also be able to look at and appraise the Retail price to ensure that the product is still good value and competitively priced in the market place.
As a company we did not see a significant impact when Vat was reduced to 15% nor when it was subsequently increased to 17.5%.
On the down side I suspect that retailers will inevitably absorb part of the increase to ensure price competitiveness, but at least they will be able to review that with the suppliers.
Overall the deferment at least shows that the current Coalition Government understands the retail markets by introducing the increase at a time which will allow retailers to prepare and cause least disruption. By and large, on average ticket merchandise I do not think that the consumer will notice a slight increase. One thing is for sure retailers will know what to do if the rise does have an impact.
Putting the increase in perspective, firstly it brings us more or less in line with the Vat in most European Countries and also for every £100 the increase is £2.13 which will hardly buy you a beer.
I am afraid that we all have a responsibility to cut the deficit and increases in taxes and decreases in Goverment spending are all bitter pills we have to swallow.
The key thing the Government now needs to get across is that once the recovery is in full swing we will all be able to take less medicine!
Vat Increase illustrations:
£100.00 at 20% would be £102.13 Increase £2.13
£200.00 at 20% would be £204.26 Increase £4.26
£500.00 at 20% would be £510.64 Increase £10.64