Delay on Vat increase relief for retailers

The Chancellor's 20 per cent VAT hike bombshell has rattled retailers but the six-month delay should help them weather the storm, City experts said.

The decision not to enforce the rise until January 4 – or to extend the scope of VAT – came as a relief to a sector that had been preparing for the worst.

While the size of the increase shocked some, the high street had long expected pain to come their way in the Chancellor's emergency Budget.

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Analysts said the decision should be seen as the best of a bad situation, although some retailers are likely to take a bigger blow from the move than others.

The reaction on the stock market was positive, with shares in most major retailers moving higher yesterday. B&Q owner Kingfisher rose 2 per cent, while high street bellwethers Marks & Spencer and Next lifted 1 per cent.

Jean Roche, retail analyst at Panmure Gordon, said the VAT hike and Budget as a whole was "rather gentler on the general retailers than we or the market expected".

She added: "Given six months warning, the retailers are likely to be able to plan for this – in fact, we think that retailers are already benefiting at the gross margin level from pre-emptive price rises."

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Comet parent Kesa Electricals signalled on releasing annual results yesterday that there would be difficult pricing decisions ahead for consumer electrical groups.

But the group acknowledged relief at the delayed introduction and for being timed to come in after the hectic Christmas and New Year period.

John Lewis managing director Andy Street warned the VAT rise could only be "bad news" for consumer spending and therefore the retail sector.

However, Kingfisher chief executive Ian Cheshire welcomed "a sensible timescale to plan and implement the change".

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As experts digested the implications of the Budget, various sectors were emerging as relative winners and losers.

Singer Capital Markets said the VAT rise would most affect those selling 'big ticket' items, including televisions and sofas, where the increase will be most felt by consumers.

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