Supermarket giants announce VAT price freeze
Tesco, Asda and Sainsburys have today confirmed they will not push through the VAT rise from 15% to 17.5% which will come in on 1 January. The UK government has been running the 15% concessionary rate for some time as a means of injecting more liquidity into the economy but on 1 January it will revert back to 17.5%. However, not all goods sold by the top three supermarkets will be eligible for the VAT freeze.
There are now a number of major UK retailers who have confirmed they will not push through the VAT rise to consumers from day one although at some point they will need to realign their prices. The problem now is that small retailers, who will also have to pay the new VAT rate of 17.5%, are unlikely to be in a position to give away 2.5% of their margin. There are fears that we will see smaller and medium-sized retailers in the UK squeezed yet again as the major players instigate a massive price war in the New Year.
Cash flow has been a problem for many retailers for some time and it is likely to remain this way in the foreseeable future.
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