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The Budget: reaction

Fashion retailers are bracing themselves for a drop in consumer spending and a logistical nightmare in January, when the hike in VAT to 20% is due to come into force. Drapers rounds up industry responses to today’s emergency Budget.

Stephen Robertson, director general, British Retail Consortium

“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.

Marks & Spencer

“It’s good that we now have clarity on the VAT issue. We have been preparing for a change and are now finalising our plans for next year’s rise.”

Richard Fleming, UK head of restructuring, KPMG

“We could see consumer spend drop by billions. Those retailers teetering on the edge may find the VAT rise pushes them over the edge. 

“While we have seen a lull in insolvency numbers in recent months, we expect this trend to reverse, particularly in industries such as retail where improving consumer demand is vital.”

Richard Lowe, head of retail and wholesale, Barclays Corporate

“Retailers have been planning for an increase and looking at cost bases and price points since [last] January.

“The timing of an increase is what retailers were focusing on. Bringing in the change on January 4 will mean the crucial Christmas trading period is protected; it will also, hopefully, help stimulate sales between now and then as shoppers bring planned big-ticket purchases forward before the change.”

Maureen Hinton, practice leader, Verdict Research

“Consumers are already being far more considered with their purchasing as they face the prospect of job cuts, reduced pensions, a continuing difficult housing market and greater general austerity.

“The [increase] will reduce demand further and hit retailers’ profits, raising the prospect of further casualties in the sector, despite the aid being given to business, particularly small, new, businesses.  This in turn will hit employment in the retail sector, impacting the young, women and the low paid the most.

“However with the rise being delayed until next January there is likely to be a spike in sales at the end of 2010 as consumers bring forward purchases.”

Clive Black and Darren Shirley, analysts, Shore Capital

“Clearly, inflation will be boosted by the rise in VAT. However, the magnitude of the fiscal tightening (around £40bn per annum) may lead the currency markets to gain confidence in the UK, whilst cuts will impact demand, so easing pricing pressures.”

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