VAT rise disappointing but at least exemptions stay

22 June 2010

The Chancellor is right to use public spending cuts as the main means for addressing the deficit but the VAT increase is disappointing.

Reacting to the Budget, today (Tuesday), the BRC said it was relieved that the range of items subject to VAT won’t be expanded but increasing the VAT rate will hit jobs, consumer spending and economic growth.

However the retailers’ organisation accepts the Chancellor has tough choices to make.

With retailers now clear that they face a 20 per cent VAT rise from 4 January, the approach to implementation is their key concern.

On VAT

British Retail Consortium Director General Stephen Robertson said: “We didn’t want a VAT increase. It’ll hit jobs, consumer spending, the pace of recovery and add to inflation but we accept the Government has no easy options.

“It’s some consolation that the range of VATable products isn’t being extended.

“Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise for retailers. Planning for catalogues is a particular nightmare.

“The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less. Six months to prepare is better than the rise coming-in this summer.

“Retailers will work hard to implement the increase smoothly but there must be a light-touch to enforcement at the time of introduction.”

On public spending cuts

BRC Director General Stephen Robertson said: “The Government is right to prioritise substantial cuts in public spending over tax rises. It has to cut spending which cannot be fully justified and get more from every pound it raises.

“The Chancellor is right that private sector businesses are the engine that will drive growth. To restore the public finances to health the Government must deliver an environment that encourages private sector investment. Tax increases do the opposite.”

On National Insurance

BRC Director General Stephen Robertson said: “The coalition’s increases will do less damage than the previous Government’s plan but it will still undermine retailers’ ability to maintain and create jobs. The Government clearly accepts NI is a ‘tax on jobs’.

“The exemptions for new businesses will be useful as they start trading. This is the time in their development when they are most vulnerable and most in need of help.”

On Corporation Tax

BRC Director General Stephen Robertson said: “Lowering Corporation Tax will support private sector investment and entrepreneurship. It also sends a positive message to the rest of the world that the UK has a competitive tax system which makes it a good place in which to do business.

“But reducing capital allowances for plant and machinery will hurt retailers’ cash flow. Like manufacturing, retail is a capital intensive sector. Taking more money from retailers will hit investments. Anything which tips the balance against plans for marginal stores should be avoided. However the delay in introduction until 2012 is welcome.

“Retailing is key to town centre regeneration. It revitalises communities by creating jobs and promoting economic growth. Protecting incentives for investment in retail-led regeneration brings widespread benefits.”

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