Trade body says 2% rise will worsen trading conditions and send consumers into Northern Ireland.
UK fashion retailers operating in the Republic of Ireland are preparing to absorb the costs of Ireland’s decision earlier this week to increase VAT from 21% to 23%.
The Irish government, which issued its budget on Tuesday (December 6), hopes to raise about €670m extra in funds from the VAT rise, effective from January 1.
An M&S spokeswoman said: “We will not be passing on today’s 2% VAT increase to Irish shoppers. Prices across fashion, furniture, beauty and home will remain unchanged and as competitive as ever.”
Colin Temple, chief executive of footwear retailer Schuh, which has eight stores in Ireland, said: “The trade in Ireland is tougher than it is here in the UK.
“As a branded retailer we tend to stick to what our brands are doing but my initial thoughts are that we are not going to have a knee-jerk reaction to this and put everything up straight away.”
Stephen Lynam, director of retail body Retail Ireland, said the VAT increase and associated costs, if absorbed by retailers, would make trading conditions even tougher.
Consumers, he added, are already hard-pressed by swingeing social welfare cuts. The household savings rate has gone up from 2% in 2007 to 14% this year, with consumers saving more in anticipation of job losses.
According to Lynam, retail sales in Ireland, in value terms, have fallen 20% since 2008 due to decreasing volumes and retailers resorting to discounting to maintain consumer spending.
He said: “There’s been a compounded effect of the budget launched this week. In addition to VAT, [retailers will feel the impact of consumers affected by] cuts to eligibility for social welfare and rises in charges for public services like medical care and fuel. The overall effect will depress demand.”
Retail Ireland has begun lobbying for a review of the VAT rise in March on the basis that the increase will not give the government the funds it is hoping to realise.
It said a rise in fuel costs, as a result of an increased carbon tax announced in Irish finance minister Michael Noonan’s budget speech on Tuesday, could act as the trigger to drive consumers north of the border.
Lynam said: “We are extremely disappointed by the rise in VAT which could end up taking money out of the economy.
“In 2009, a favourable exchange rate, cheap alcohol and nappies caused people to rush across the border [to Northern Ireland]. This time it could be fuel, and while people are there, they may do other shopping.”
Lynam also pointed out that while multiple retailers could afford to not pass on costs to consumers, indies would be worst hit.
Tom Barry, owner of indie Barry’s Menswear in Mallow, said: “I’m sure most retailers will soak up the increases. The effect will be minimal for customers. You’ve got to take it on the chin. Price point is very important.
UK retailers in Ireland
River Island (24 stores)
Schuh (8 stores)
Jane Norman (6 stores)
TK Maxx (16 stores)
Coast (15 stores)
Oasis (31 stores)
Warehouse (8 stores)
Hobbs (2 stores)
Miss Selfridge (11 stores)
Burton (12 stores)
Dorothy Perkins (23 stores)
Evans (12 stores)
Topshop (16 stores)
Topman (9 stores)
Wallis (30 stores)