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Chancellor urged to delay date set for VAT increase

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The British Retail Consortium (BRC) has said that the planned date for the restoration of the old rate of VAT will come at the worst possible time for businesses.

VAT was cut from 17.5 per cent to 15 per cent last November in an effort to encourage more consumer activity.

The higher 17.5 per cent rate is due to be re-introduced on 31 December, but the BRC has argued that the timing will impose an extra burden on businesses just as they are coping with one of the busiest trading periods of the year.

Instead, the BRC wants to see the increase in VAT put back a month so that businesses have a chance to handle the administrative changes without the added pressures of Christmas trading.

The BRC said that it cost the sector around £90 million to implement the cut to 15 per cent and, because of the December date, will cost a similar amount to reintroduce the 17.5 per cent rate.

In order to minimise the disruption and confusion, the government should postpone returning VAT to 17.5 per cent by at least one month to the end of January 2010.

The call came as part of the BRC’s budget submission to the Chancellor.

Stephen Robertson, the BRC’s 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.”

The trade organisation also wants to see an immediate freeze on new business rates burdens.

Retailers pay around a quarter of all business rates costs despite representing only eight per cent of GDP, the BRC added. The bill could rise by 30 per cent to £7 billion by 2010/11 because of the abolition of empty property rate relief, the annual increase in business rates, the revaluation of business rates in 2010 and the introduction of Business Rate Supplements.

Mr Robertson commented: “Proposed property tax changes, such as the revaluation of Business Rates, could see property costs increase to £7 billion by 2010/11.

“Property is one of retailing’s biggest costs. 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.”

Other measures the BRC believes are necessary to help businesses survive the economic downturn include: keeping National Minimum Wage increases below 1.5 per cent; a cancellation of the proposed 0.5 per cent increases in employee and employer National Insurance contributions; zero VAT rates on all domestic insulation and all energy efficient products meeting Energy Saving Recommended ratings; and 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.