Could the VAT rise in January kill the UK retail sector?
While retail sales in the UK have certainly slowed in the short term we are still currently in positive territory with recent figures for August showing a like for like increase of around 1%. However, as we approach the end of 2010 retailers in the UK are faced with an increase in VAT to 20% in January 2011, something which will impact on every area of the UK business arena and every member of the UK population. So could the VAT rise in January kill the UK retail sector?
The ongoing "recovery" in the UK retail sector is fragile to say the least and there are serious concerns about the short to medium term outlook. However, the UK government needs to replenish funds and increasing VAT was seen by many as one of the better options. However, a number of studies have shown that an increase in VAT will disproportionately impact upon the income and spending power of those on low incomes compared to those on higher incomes. As a consequence, UK retail sales are almost certain to fall towards the end of 2010 and the beginning of 2011, especially if the UK economy takes a downward turn.
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