Up to one in 14 retailers are planning on making redundancies to compensate for the increase in VAT next year, with businesses in London, the South West and East Midlands intending to raise their prices, according to a recent survey by OnePoll.

The findings, which reveal that only one in 10 companies intend to absorb the costs entirely, show that 68% of retailers will be left with no option but to pass the increase on to their customers.

The change in VAT – due to come into force next January – will see the rate rise from 17.5%, to 20% – a move which is likely to put even greater pressure on retailers at what is already expected to be a very challenging time.

Commenting on the rise, Stephen Robertson, director general of business support group, the British Retail Consortium (BRC), says, “We did not want a VAT increase. It will hit jobs, consumer spending, the pace of recovery and add to inflation, but we accept the Government has no easy options.

“Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise for retailers,” he continues. “And planning for catalogues is a particular nightmare. The start date, in the middle of the busy and crucial post-Christmas sales period, will also be difficult, but retailers would rather have more notice than less. Six months to prepare is better than the rise coming in this summer.”

However, not all retailers are as concerned about the change in VAT as recent reports would suggest, with many believing it will have little effect on overall sales in the long run. “To be honest, I think the main thing that will cause a fall in footfall will be the hype surrounding the change, rather than the actual 2.5 percent increase itself,” explains Linda Robinson, owner of Llinda's Greeting Cards & Craft Accessories in Nottinghamshire.

Suggesting that consumers will react to next year's tax hike in the same way they did its reduction at the start of 2010, she says, “Other than causing a lot of unnecessary hassle and stress, the decrease in VAT made little difference to our takings this year and while I think the rise will have a huge impact on people's spending over the next six months, as they stock up on all their essentials before the increase comes into force, I doubt it will have a very big influence in the long term.”

“Of course, I am sure we will see a slight drop in sales during the first month or so, as the commotion surrounding the change gains momentum, but I doubt it will have a lasting effect,” she adds. “I expect most people will get use to the higher prices very soon, and although the situation isn't ideal, I don't think it will be as detrimental for the retail industry as many might think.”

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