Mystery Shoppers

Featured Article November '09

 

 

VAT RISE: The Impact of Inevitable 'Idiocy'

 

On December 1st 2008, as the world sunk in to the depths of recession, VAT fell from 17.5% to 15% in the UK, a move that caught many retailers short and cost the industry a reported £90 million. It was an action that intended to increase consumer spending throughout 2009, yet in which time we are still to exit this recession.

However, on January 1st 2010, retailers and consumers will have had a little more notice in order to prepare for VAT returning to 17.5%. A move that seems like a huge risk considering the perhaps unexpected news at the end of October that the UK economy is still shrinking.

So did the VAT fall help the industry during the year? Initially it would appear it did not. Christmas 2008 was the worst festive period on record, although it would have arguably been worse if rates had remained the same. VAT looks like it will similarly impact on spending this Christmas.

In my opinion the VAT cut did not help out consumers during the recession. At the time there were complaints that the cut would not drive spending enough, which has probably been realised, at least until the best October on record since 2002. Last year’s cut was indeed too small and merely a token gesture that was a poor attempt at appeasing consumers.

However, if the cut was insignificant that must mean any rise could also be labelled as such: highly unlikely. The expected announcement that the third financial quarter has finally seen the UK exit recession did not come. October’s record figures were consequently set against a background of popular opinion that the recession was over. It will therefore be interesting to view final quarter results when they are released considering Christmas spending and a VAT rate of 15% perhaps finally driving spending (if only because it is to return to its previous rate), yet set against the knowledge that we are officially still in recession.

So what will the New Year bring? A VAT rise in an economy still officially shrinking (according to the last official figures) coupled with exhausted consumer coffers from Christmas is not the best recipe for more green shoots. What happened in the third quarter of 2009 may have fewer assuming the best in next quarter’s announcement.

So the immediate future still looks like posing difficulties. Our advice from previous newsletters that providing excellent customer service, capitalising on idiosyncrasies and ‘bucking the trend’ is good advice in any market, but especially now and in to what might be a more difficult New Year that initially assumed.

 

 

 

 

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