Bag a bargain this weekend
VAT will decrease to 15% from 1 December but people planning to hit the shops this weekend could still be able to find a bargain or two thanks to a price war breaking out between the major retailers.
Unsurprisingly, shops are backing the chancellor’s ambition to get us all spending in the run-up to Christmas, and have responded with discount days, price cuts and other initiatives.
For example, supermarket giant Tesco is introducing the lower 15% rate of VAT on all eligable products, including electricals, home entertainments and clothing, from Friday 28 November.
It has also cut prices by up to 50% on around 1,000 items in a bid to attract shoppers through its doors over the Christmas season. The supermarket has seen its market growth take a hit this year as cash-strapped shoppers turn to budget alternative for the weekly shop.
Its price cuts include an iPod shuffle for £31.97, half price children’s bikes and up to 50% off many food items.
John Lewis has also introduced lower VAT ahead of the official 1 December implementation date.
In a statement, the retailer said: "We are acting as quickly as possible to enable us to pass on the VAT reduction online and in our shops. Our priority is to ensure that our customers will always pay the right price and we will be re-pricing all affected products. In all cases we will pass on the entire benefit of the government's VAT reduction and in many cases our reduction will exceed this amount in order to be consistent with our pricing policy."
It is also offering discounts across a number of departments, including luggage, clothing and toys.
But these are not the only retailers to be rolling out the special offers over the Christmas season. Marks & Spencer and Debenhams both held discount days last week, and are reportedly planning more in the weeks leading up to 25 December.
And House of Fraser is in the midst of its own two-day promotion, with up to 25% of most departments from midnight on Wednesday 26 November until the end of Friday 28. Bear in mind, though, that the discount for beauty, electrical and furniture is a more modest 10%.
Meanwhile, Superdrug is offering up to 60% off its top-selling perfumes for the next two weeks. Deals include £33.01 off Elizabeth Arden '5th Avenue' (was £48, now 14.99) and £39 off Britney Spears 'Curious' (was, £39, now £15).
The retailer, which competes with Boots for beauty sales, is also offering three for two across Christmas gifts, half-price electric toothbrushes and three for two across the entire range of cosmetics within each brand.
Meanwhile, Littlewoods is offering three for the price of two on over 2,500 toys and gifts this weekend, with the offer ending at midnight on 30 November. Mamas and Papas is offering 10% off everything on 29 and 30 November.
And if you want to get stocked up on alchohol before Christmas, Threshers is offering 40% off all wine and champagne until 2 December. All you need to do is download a voucher from its website, which can also be used in Victoria Wine stores and winerack.co.uk.
From Monday 1 December the standard rate of VAT in the UK will be 15%, rather than 17.5%. The change lasts for 13 months and is aimed at kick-starting the economy by encouraging people to spend.
Whether or not it will achieve this remains to be seen. With discounts such as 50% across 350 Tesco lines, plus discount days at major retailers M&S and Debenhams, the more modest 2.5% cut in VAT may not be enough to entice shoppers to part with their cash.
There are also concerns that some retailers (especially smaller shops) may struggle to implement the changes in time. Back office systems, price tags and electronic equipment all need to be updated with the change to VAT.
Andy Hardy, a director at TaxCalc.com, says: ”The VAT reduction will impose additional costs on businesses to make the change – and to reverse it in 13 months time. Whether businesses will pass the reductions on is an open question – even the pre-Budget report figures envisage that only 50% will pass it on.”
Stephen Robertson, director general of the British Retail Consortium, says shops will cope with the change, but claims it won't be easy. “Implementing a new VAT rate in just a week will be exceptionally difficult for customers and retailers at their busiest time of year. IT system changes, replacing shelf labels and stickering-over prices on packs will be a mammoth and costly task.
“Staff will inevitably be diverted away from serving customers. Small retailers will find all this particularly difficult to accommodate.”
Invented by a Frenchman in 1954 and ironically introduced in the UK on 1 April 1973, VAT is an indirect tax levied on the value added in the production of goods and services, from primary production to final consumption and is paid by the buyer. Its levying is complex, with a number of exemptions and exclusions. For example, in the UK, VAT is payable on chocolate-covered biscuits, but not on chocolate-covered cakes and the non-VAT status of McVitie’s Jaffa Cakes was challenged in a UK court case to determine whether Jaffa Cake was a cake or a biscuit. The judge ruled that the Jaffa Cake is a cake, McVitie’s won the case and VAT is not paid on Jaffa Cakes in the UK.