VAT rate change 'creates' consumer rush

30 December 2009

The post-Christmas surge in shopper activity should not be mistaken for a return to consumer confidence, a research group has warned.

Synovate, a retail analysis organisation which monitors numbers at retail centres, reported that bank holiday Monday was the busiest shopping day of 2009. It outstripped even the last Saturday before Christmas, traditionally the most hectic of the year.

But Tim Denison, an analyst at Synovate, said that the crowds were not an indication that consumer optimism was on the up. They were, instead, the outcome of the lack of pre-Christmas discounts and the New Year reversion to the old 17.5 per cent standard rate of VAT.

Mr Denison said: “We must be cautious about how these figures should be interpreted. I don’t believe this is symptomatic of a dramatic bounce back in consumer confidence.

“The strong performance is anchored around consumers considering making some expensive household purchases before the VAT rate returns to 17.5 per cent in January.”

Another piece of research, carried out by internet auction group eBay, revealed that many online businesses have judged the temporary VAT reduction to 15 per cent a success and want it retained.

Of the 500 online firms polled, nearly a half thought that the VAT cut, introduced to help encourage sales, had indeed boosted business. At the start of the year, when the reduction first took effect, that proportion was just 17 per cent.

The majority of those online businesses surveyed said they were against the return to the 17.5 per cent rate.

The study reported: “The VAT rate is already high on the list of concerns for online businesses, with a third of online firms believing it is a major barrier to growth. Overall, 53 per cent of online firms believe that lower taxes are crucial to the sustained development of the digital economy.”