We will not be increasing our prices on January 1st 2010 when the Government increases Vat to 17.5%. We will be absorbing the increase.
Our prices will start to change where applicable as our suppliers officially put their net cost prices up to us, which usually occurs during the 1st quarter of the year.
The increase is typical of the Government and politicians in general whose understanding of how commercial businesses operate and lacks any kind of common sense.
They decreased Vat to 15% in December 2008 at a time when most retailers are at their busiest working towards Christmas. We duly decreased our prices as the public would expect to reflect the new value, which whilst easy online, created administrative issues in the store not least with signage.
The reasoning for the cut was to boost consumer confidence!
Let me tell the Government there is not a retailer in the land that does not know what to do to generate confidence and turnover by reducing prices but 2.5% would not be one of them. The balance is to make sure the business you try to buy by reducing prices is still profitable. Our experience is that a minimum of 10% is required and for certain products like Fashion clearance 50% to 70% is the norm.
I do not know exactly what the Government lost in revenue by the initial reduction to 15% but there are no signs that it worked. Scrappage and other more marketing orientated schemes are much more likely to get the consumer interested.
We are now hearing that the Conservatives are considering a 20% Vat rate, they clearly think that the economic recovery is stable enough!
The truth is that for most retailers, apart from a load of administration, lowering the Vat to 15% had little effect and putting it back to 17.5% will cost us a little bit more tax whilst we subsidize by holding prices. 20% Vat could end all thoughts of a quick economic recovery but then politicians wouldn’t understand that!