The Dreaded Has Risen

After a Happy New Year celebration 2011 starts on a note not quite as happy. The VAT rise from 17.5% to 20% is here.

Business leaders are warning of adverse impact to the retail sector and opposition to the rise are expressing concerns that the poorest will be the worst affected.

The government has specified the necessity to reduce the National budget deficit as the reason for the rise and that the rise, in Chancellor George Osborne's opinion, was a more "progressive" move than hiking other taxes.

Some essential items such as children's clothing and food remain unaffected by VAT.

The British Retail Consortium has warned that the rise has concentrated traditional January sales into a concentrated New Year period whilst other research indicated that retail sales could fall by £2.2 bn in the first quarter of 2011 as a result of the rise.

In excess of 70% of businesses polled by the BRC thought that customers would bring forward shopping to avoid the rise.

The BRC expressed concern that this rise, along with increased NI costs and other factors such as rates would tighten the pinch that already surrounds many businesses.

A spokesperson from the chartered accountancy firm Kingston Smith, Mr. Adrian Houston expressed the opinion that the dip in spending might be shorter than expected:

"The increase will inevitably affect the first quarter of this year, possibly the second quarter,"

And he went on to say that, in his opinion, a 2 % rise was unlikely to have a lasting impact.

The commercial director at Comet, Bob Darke, seems to agree:

"There is no reason to believe that consumer spending can't continue at pretty similar levels that we saw in 2010."