VAT rise adds to retail crisis

Retailers are braced for a spate of bankruptcies amid fears that High Street spending is poised to drop sharply. Experts are warning that rising consumer debt and the increase in the VAT rate will prompt shoppers to begin to rein in spending

this week. Sales have jumped over the past few days with the rush to beat the tax increase and to snap up discounted products, with shopper footfall rising nine per cent on January 1. But footfall to Christmas Eve was down 0.7 per cent, according to data produced by Experian for Financial Mail.

'Many retailers have had a bad Christmas but so far that remains hidden. From mid-January onwards we are expecting a spending lull to set in that will test the resilience of some of the weaker retailers,' said Experian retail director Jonathan De Mello.

The New Year sales would be the 'last throw of the dice' for some troubled retailers, according to the insolvency professionals' body R3. PricewaterhouseCoopers estimated a quarter of shoppers made purchases ahead of the VAT rise to beat price increases. That would only exacerbate a drop off in High Street spending.

The majority of shops promised to resist introducing the tax this weekend to stoke the interest of shoppers - but they are expected to gradually cave in over the next four weeks.
John Lewis said it will hold off adding the increase of 2.5 per cent up to 17.5 per cent until the end of the month and Argos said it will not raise prices until its new catalogue arrives, normally during the third week of January.

Image: Bankruptcy Source: Daily Mail