Eleven hours into the new year and Lauren Thomas was preparing to enter her fifth shop. The pressure to buy was building. "I've got my shopping list and I need to get it all done before the VAT rise comes in," said the 36-year-old from Camden, north London.
Thomas had found the perfect television – a 27in widescreen at a reduced £249 – and now it was time to scour Oxford Street for a discounted washing machine before the VAT increase tomorrow. "I've budgeted for both and now's the time to buy – you've got the January sales before the tax rises, which feels like you're making an extra saving," she said.
However, the expected spending frenzy before the rise to 20% appeared to have been overhyped. Several major outlets, including the flagship Apple Store on Regent Street, appeared to have more staff than customers yesterday morning.
Natalie Benson, 19, a student from Acton, west London, was out shopping with friends, but said VAT was not a factor. "We haven't got much money so it won't affect us that much, but it seems quiet today," she said.
Staff at Game on Oxford Street said the most pivotal factor affecting the number of shoppers appeared to be the amount of hangovers in the capital, rather than attempts to beat the VAT rise. By the time the drizzle began falling on central London at midday, Oxford Street appeared oddly quiet, with sparse huddles of shoppers beneath umbrellas. The stores, though, could not be faulted for trying to entice extra custom, with most advertising massive discounts of at least half price. In FCUK – where prices have been slashed by up to 75% – the store supervisor admitted that trade was not as brisk as before Christmas.
Some experts had estimated that a third of shoppers were planning to bring forward major purchases to avoid paying the extra VAT, which will rise from 17.5%. Boxing Day sales had appeared to support that view, with John Lewis breaking its record for takings on a single day by 30%.
In the longer term, however, retailers are cautious about the outlook, with Christmas sales tarnished by the cold weather and anxiety over the government's austerity measures. One piece of research estimates that the VAT rise will add £158 a year to essential bills for the average household.
David Cameron's ambitious strategy to boost Britain as a tourist destination ahead of the Olympics could also be jeopardised by the VAT rise, which is likely to hurt hotels already labouring under one of Europe's highest tax rates.
In August, he said he wanted Britain to become one of the world's top five visitor destinations, describing tourism as fundamental to the economy. But Labour politicians have expressed alarm that the 20% rate will put off both domestic and foreign tourists.
Britain is unusual in levying full VAT on the tourism industry – most European nations impose a discounted tax rate on hotel rooms and restaurant meals to attract visitors. France, which has a VAT rate of 19.6%, imposes a rate of just 5.5% on hotel rooms. Germany discounts its 19% rate to just 7%. "Tourism plays a vital role in our economic growth," said shadow tourism minister Gloria De Piero. "The Tories should be helping the industry, not saddling it with this unfair VAT hike."
The Department for Culture, Media and Sport is due to publish a twice delayed national tourism strategy this month intended to capitalise on next year's Olympics and the Queen's diamond jubilee celebrations. It will examine ideas including a change in the clocks to allow more daylight, reforms to make it easier for foreign tourists to obtain visas and adjustments to the timing of bank holidays.
Comments in chronological order (Total 4 comments)
2 January 2011 11:00AM
Perhaps the whole hyping up of 'people will spend before the VAT rise hits!' was looking at it wrong.
Perhaps instead, people are saving more money in preparation for the VAT rise.
Which could mean that people will have the money to spend 'as normal' in the New Year. I doubt this somehow, but there you go.
I wonder if the OBR will change it's wild predictions of growth in the first couple of months of January.
What we really need to happen is for property prices to crash (because they still seem, to me, to be massively over inflated - which means we could experience a bigger recession next time). Lower property prices = lower rent. Lower rent = higher company profits = lower prices or increased investment capital. Lower prices = more 'demand' = more spending.
Woo hoo recovery.
And in the long term we need to deal with land/property speculation and need to see a massive drop in rental values. So we can stabilise growth.
2 January 2011 11:09AM
Should read January-February.
But it would be good for economic progress if January did last for two months - assuming rental values stayed the same.
2 January 2011 3:44PM
More obsession with shopping! Do we need all this "stuff"? If you want everything in the world, you must get a bigger cupboard!
2 January 2011 8:16PM
Tough choices. Its New Years Day. Do I drive the 75 miles to London in the freezing rain having paid £1.25 per litre of petrol (that about £25 round trip in my vehicle), find somewhere to park, get wet, get hustle and bustled, to take advantage of Oxford Streets eye popping reductions on the already eye poppingly high prices after many hours of footwork, or... do I sit at home in the warm and spend 15 minutes on Amazon, Ebay, Dabs etc to take advantage of the eye poopoing reductions on the already eye poppingly low prices. Tough choices, but alas Amazon got my Christmas prezzie money while I had one eye on the lap top the other on the TV and I sit back happly chopping another mince pie, that my new Sat Nav will be winging its way to my front door c/o of trhe post man in the next few days thus beating the VAT rise... unfortunately any saving will end up in the pockets of the transport and utility companies as the new year progresses !