SEMPORA Study: UK VAT Increase January 2010: Negative Effects Anticipated by Retailers and Consumers

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Industry snapshot indicates how return to 17.5% standard rate VAT will affect retailers, producers and consumers.

UK consumers could face a double hit when VAT goes back up to 17.5% on 1st January 2010. According to a recent study by SEMPORA Consulting, London, around a third of retailers are looking at using the opportunity to make additional price increases on top of the VAT increase. There is some comfort for shoppers – while 50% of retailers intend to pass on at least the full amount of the VAT increase, 21% said they were planning to pass on only part of the additional cost and 29% indicated that they would hold prices at current levels. As a result, the VAT increase is also likely to put extra pressure on company profits and trading relationships between suppliers and retailers.

While almost 90% of suppliers did not see much scope for price cuts, the majority of retailers are set to maintain strong pressure on net sales prices. In the end, the loser in this game is likely to be the consumer, who is expected to bear the main burden of the VAT increase. Consumers, in turn, can see that the VAT increase will reduce their purchasing power and so said they were planning to bring forward some key purchases. Depending on the product category in question, between 13 and 41% of shoppers were intending to make purchases in 2009 instead of 2010 to save on VAT. And many were planning to reduce their spending in 2010.

As part of this study, SEMPORA surveyed 129 consumers as well as 108 senior managers at leading companies in retailing and manufacturing.

For the full release or further information please contact:

Francis Prosser
SEMPORA Consulting Ltd
33 St James’s Square            
London SW1Y 4JS    

Tel: +44 (0) 203 178 4612

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Francis Prosser
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