The British Retail Consortium (BRC) has forecast that the return of VAT to 17.5% on January 1 will cost retailers £90m, as the Conservative party refused to rule out raising VAT further if they come to power.
Retailers spent £90m altering their prices and systems when VAT was reduced to 15% in December, and the BRC said that it will cost a similar amount to reverse the change by January.
Shadow chancellor George Osborne has also refused to rule out increasing VAT further than 17.5% to rebalance public finance. According to The Daily Telegraph senior Conservatives are looking at the possibility of increasing VAT to 20%.
Separately, the Office for National Statistics (ONS) has found that a third of retailers did not pass on the price changes to consumers following the reduction in VAT in December.
The ONS said that while 43% of shops applied the price change and 14% changed all prices marked on the shelves, 9% used a combination of the strategies.
The BRC disputed the claim that shops did not pass on the cut. A spokesman said: “Our members made a huge effort to ensure the cut happened, and we are not aware of any member who did not pass the cut on to their customers, even at the start.”