VAT Increase Planned For Worst Possible Time – Says BRC

8 March 2009

The Chancellor should use his Budget to announce he will delay the VAT increase by a least a month from its current due date of 31 December, said the British Retail Consortium (BRC).

The retailers' organisation is warning Alistair Darling he has chosen the worst possible time of year to impose the huge task of reversing last year's VAT cut. December is the busiest period for most retailers. It cost the sector around £90 million to implement the cut to 15 per cent and, because of the timing, will cost a similar amount to reintroduce the 17.5 per cent rate.

The call to delay the VAT increase is part of the ‘Turning the Corner' recovery plan contained in the BRC's Budget submission, which is published today (Monday).

The BRC is also calling for an immediate freeze of new business rates burdens, as part of a package of measures to preserve and promote retail opportunities.

Stephen Robertson, BRC Director General, said: "Retailing is facing the toughest trading conditions in decades, with predictions of 15 per cent of shops closing and up to 200,000 job losses.

"Retailers don't want handouts, but we can't cope with increasing Government-imposed handicaps. Retailing is at the heart of every local community, providing one in nine UK jobs. The Government must work with us to protect these jobs and promote new opportunities."

Postponing the reintroduction of the 17.5% VAT rate
Despite less than a week's notice at their busiest time of year, retailers worked extremely hard to ensure the VAT reduction was passed onto customers on time.

It cost the industry around £90 million to make the changes last December. It will cost a similar amount to change the rate back to 17.5 per cent this December - again at the busiest time of year for most retailers and when the economy is unlikely to be in significantly better shape than now.

To minimise the disruption and confusion, the BRC is calling on the Government to postpone returning VAT to 17.5 per cent by at least one month to the end of January 2010.

Stephen Robertson, BRC Director General, said: "Changing VAT rates back to 17.5 per cent at the end of December will soak up a lot of effort at the busiest and most important time of year for most retailers. For some shops post-Christmas sales are 50 per cent above normal – so it's a time when staff should be focusing on serving customers. Re-pricing is very labour intensive. The need for overtime and bank holiday working will make it a costly distraction for retailers. The Government should postpone the reintroduction of the 17.5 per cent VAT rate by at least a month."

An immediate freeze on all new business rate burdens
Retailers pay around a quarter of all business rates costs despite representing only eight per cent of GDP. This bill could rise by 30 per cent to £7 billion by 2010/11 because of the:
• Abolition of empty property rate relief - £115m/year
• Annual increase in business rates - £250m/year
• Revaluation of business rates in 2010 - £900m/year
• Introduction of Business Rate Supplements - £160m/year

The BRC is calling for an immediate freeze on all new business rate burdens and the reinstatement of empty property rate relief.

Stephen Robertson, BRC Director General, said: "Proposed property tax changes, such as the revaluation of Business Rates, could see retailers' property costs increase to £7 billion by 2010/11. The additional burden is equivalent to the average salaries of over 100,000 retail employees.

"Property is one of retailing's biggest costs, alongside our people. There is a real danger that these Government-imposed costs will result in more empty High Street stores and further job losses. Business Rates must be frozen at 2008 levels."

The BRC is also calling for:
1. National Minimum Wage (NMW) increases to be kept below 1.5 per cent to allow retailers to maintain, and where possible, increase job opportunities.
2. A cancelation of the proposed 0.5 per cent increases in employee and employer National Insurance contributions with a view to maintaining and encouraging employment.
3. Zero VAT rates on all domestic insulation and all energy efficient products meeting Energy Saving Recommended or other ‘best in class' ratings.
4. A range of measures to encourage green investments, such as business rates and council taxes to be reduced by 15 per cent where 15 per cent or more of own needs are met from on-site generation.
5. Minimal development costs for retail-led regeneration projects.
6. Increased Government support for building skills in the retail sector and its supplier base.

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