The great VAT pricing smokescreen

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Retailers are preparing to to postpone the VAT rise according to the Times. Many retailers having done their best to attract buyers with “Beat the VAT rise” campaigns, are now planning to hold off on price increases in an attempt to prolong the post Christmas sales.

Don’t be fooled though – most prices on the high street conveniently end in 99p. If consumers had been getting the VAT cut passed on to them for the last year then current prices wouldn’t be such conveniently round numbers. I remember last year retailers reducing VAT at checkout, followed a few days later by store signage stating that all prices had now been changed to reflect the VAT cut. However by the end of December when the sales were in full swing prices were all back to £9.99, £14.99, £19.99 etc.

Seeing as that’s the normal sales prices, any reduction in VAT had been clawed back within weeks and consumers didn’t benefit in the slightest. Those same retailers are now planning to hold off VAT rises but most have been benefiting from lower VAT at the expense of consumers for the whole of the last year.

In reality a few retailers (and notably mobile phone networks) passed on the VAT decrease and so can legitimately increase their prices. Most never decreased their prices in the long term and will now either make a big deal of not increasing costs to consumers, or simply hike prices and blame it on the government.

So, if you’re VAT registered, what will you be doing? Will you increase your prices, will you “absorb” the VAT increase, or didn’t you reduce your prices a year ago at the last VAT rate change?

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