BRC Urges UK Government To Delay VAT Increase

by Robin Pilgrim, LawAndTax-News.com, London

11 March 2009

UK Chancellor Alistair Darling should use his Budget to announce that he will delay the Value Added Tax (VAT) increase by a least a month from its current due date of December 31, the British Retail Consortium (BRC) has urged.

The retailers' organization says Mr Darling has chosen the worst possible time of year to impose the huge task of reversing last year's VAT cut.

According to the BRC, December is the busiest period for most retailers. It cost the sector around GBP90m (USD124m) to implement the cut to 15% and, because of the timing, will cost a similar amount to reintroduce the 17.5% rate.

The call to delay the VAT increase is part of the ‘Turning the Corner' recovery plan contained in the BRC's Budget submission, which was published on March 9.

The BRC is also calling for an immediate freeze of new business rates burdens, as part of a package of measures to preserve and promote retail opportunities.

Stephen Robertson, BRC Director General, commented:

"Retailing is facing the toughest trading conditions in decades, with predictions of 15% of shops closing and up to 200,000 job losses."

"Retailers don't want handouts, but we can't cope with increasing Government-imposed handicaps. Retailing is at the heart of every local community, providing one in nine UK jobs. The government must work with us to protect these jobs and promote new opportunities", he added.

The BRC went on to point out that, despite less than a week's notice at their busiest time of year, retailers worked extremely hard to ensure the VAT reduction was passed onto customers on time.

It cost the industry around GBP90m (USD124m) to make the changes last December, and it will cost a similar amount to change the rate back to 17.5% this December - again at the busiest time of year for most retailers and when the economy is unlikely to be in significantly better shape than now.

To minimize the disruption and confusion, the BRC is calling on the Government to postpone returning VAT to 17.5% by at least one month to the end of January 2010.

Mr Robertson, BRC Director General, continued:

"Changing VAT rates back to 17.5% at the end of December will soak up a lot of effort at the busiest and most important time of year for most retailers. For some shops post-Christmas sales are 50% above normal – so it's a time when staff should be focusing on serving customers. Re-pricing is very labour intensive. The need for overtime and bank holiday working will make it a costly distraction for retailers. The Government should postpone the reintroduction of the 17.5% VAT rate by at least a month."

Backing their call for an immediate freeze on all new business burden rates, the BRC explained that retailers pay around a quarter of all business rates costs despite representing only 8% of GDP. This bill could rise by 30% to GBP7bn (USD9.6bn) by 2010/11 because of the:

• Abolition of empty property rate relief - GBP115m (USD158m)/year;
• Annual increase in business rates - GBP250m (USD344m)/year;
• Revaluation of business rates in 2010 - GBP900m (USD1.23bn)/year; and
• Introduction of Business Rate Supplements - GBP160m (USD220m)/year

Continuing, Robertson remarked:

"Proposed property tax changes, such as the revaluation of Business Rates, could see retailers' property costs increase to GBP7bn (USD9.6bn) by 2010/11. The additional burden is equivalent to the average salaries of over 100,000 retail employees."

"Property is one of retailing's biggest costs, alongside our people. There is a real danger that these Government-imposed costs will result in more empty High Street stores and further job losses. Business Rates must be frozen at 2008 levels."

Further to this, the BRC is also calling for:

• National Minimum Wage (NMW) increases to be kept below 1.5% to allow retailers to maintain, and where possible, increase job opportunities;
• A cancellation of the proposed 0.5% increases in employee and employer National Insurance contributions with a view to maintaining and encouraging employment;
• Zero VAT rates on all domestic insulation and all energy efficient products meeting Energy Saving Recommended or other ‘best in class' ratings;
• A range of measures to encourage green investments, such as business rates and council taxes to be reduced by 15% where 15% or more of own needs are met from on-site generation;
• Minimal development costs for retail-led regeneration projects; and
• Increased government support for building skills in the retail sector and its supplier base.

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