Page last updated at 18:58 GMT, Tuesday, 25 November 2008

Retailers prepare for the VAT cut

Shopper passing shop in Leeds
VAT is coming down but just for 13 months

Britain's retailers have begun to prepare for the 2.5 percentage point cut in VAT announced by the chancellor on Monday in his pre-Budget report.

Department store John Lewis said it would reduce prices this week, ahead of the official cut.

Other stores said it might take them longer to readjust prices, while some smaller shops said they would struggle with the cost of making the changes.

On 1 December, VAT will fall from 17.5% to 15% - until 31 December 2009.

Chancellor Alistair Darling urged retailers to pass on the reduction as soon as they could.

However, while bigger stores would be able to handle the price changes, the British Retail Consortium said, many smaller retailers could struggle with the expense of implementing the changes.

"Shops will cope, but implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year," said BRC director general Stephen Robertson.

"IT system changes, replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task. Small retailers will find all this particularly difficult to accommodate," he said.

Rather than helping us as a small business we have incurred extra expense at a time when we could have done without it
Mary Boughton, Dorwest

The Federation of Small Businesses said that the VAT cut would "be difficult and costly for some small and medium-sized businesses to implement by next Monday."

While many stores told the BBC they were still working out the details of how to implement the reduction in VAT, John Lewis said its stores would start cutting prices this week.

"We will implement the changes over the next three evenings so prices will begin to change from Friday. These changes are systems changes, which means the customer will always pay the new lower price at the till even if the price on goods take a little longer to change," John Lewis said in a statement.

'Extra expense'

Home Retail Group, which owns both Argos and the DIY chain Homebase, said it planned to pass on the full extent of the VAT savings to its customers as quickly as possible.

In a statement it said "while we will do everything we can to ensure that these changes are implemented within the government's timeframe, we cannot guarantee that all necessary changes will be in place by the Monday deadline."

For smaller businesses, the VAT cut is likely to prove more painful.

HOW VAT CUT AFFECTS PRICES

Mars bar - down 1p
JVC LCD television - down 12.77
Levi's jeans - down 1.49
Next suit jacket - down 3
Ford Focus - down 322

Mary Boughton, of the Dorset-based herbal medicine specialists, Dorwest, said her business had already lost money as a result of the VAT change.

"We are having to destroy 17,000 retail price lists plus 10,000 trade price lists as unfortunately we produced new price lists on 1 November. Add to this the design work costs and we reckon that just on these two items we will have lost 1,500 immediately."

"Rather than helping us as a small business we have incurred extra expense at a time when we could have done without it," she said.

Gail Tucker, who runs her own social work consultancy business in the Midlands, said she would have to absorb the major part of the cut in VAT.

As her turnover was just over the VAT threshold, she said was now seriously thinking of cutting back on her earnings.

"I think I now need to consider whether to reduce my business output to take turnover below the VAT threshold - which will hardly stimulate the economy."

The car industry welcomed the cut in VAT and said that car prices in showrooms would begin to fall from next week.

Retail Motor Industry Federation director Sue Robinson said: "The reduction in VAT means that car prices will fall, and could encourage consumers to return to showrooms. This will help to restore consumer confidence, which is key to the revival of the overall economy."



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