How will the rise in VAT affect the UK retail sector?

Part I: Executive Summary

The rise in VAT to 20 percent in January 2011 is far from welcome news for the retail sector, which has been at the sharp-end of the economic downturn and deep recession for the past two years, and takes the UK from having one of the lowest rates in Europe to being mid-table in the list of 27 EU countries (appendix 1).

It is estimated by The Office for Budget Responsibility that the two and a half percentage point increase will raise revenue of £12.1bn in 2011, rising to £13.4bn by 2014/15. This will come out of consumers’ pockets or reduce businesses’ profits, although this includes all products and services which are subject to VAT, so not all of the impact will be felt in the retail sector.

However, according to the KPMG/Synovate Retail Think Tank (RTT), a rise in VAT was preferable to a sharper increase in direct taxation which could have come out of the Chancellor’s emergency budget, making it the “least worst” option for the sector.

And while the timing of 4^th January 2011 for the new rate presents challenges for retailers, coinciding with the busy post-Christmas sale period, it was preferable to a more immediate increase – shortly after the budget or over the summer – as it provides retailers with valuable time to plan.

The RTT considered who would bear the cost of the increase: retailers, suppliers or consumers?  The most likely scenario is that they will all share part of the pain of the VAT rise either through margins being squeezed or, in the case of consumers, through lower disposable income, reduced volumes or quality of products consumed.  The RTT believes that retailers have no choice but to pass more than half of the cost to consumers and, due to the highly competitive nature of the industry, absorb the remainder themselves or share it with suppliers.

They will be preparing for the rise over the rest of the year by building the change into their pricing structure ahead of the year end and pushing promotional strategies in the lead-up to, and post, Christmas, both of which should provide a short term fillip to sales and a positive impact on margins.  At least some of this benefit will go towards covering the cost of making the change.

The RTT also discussed the impact on retail spending and the relationship of the volume and the value of retail sales.  Some groups of consumers will inevitably be hit harder than others (and in turn some businesses will be affected more, particularly where markets are already weak).  Overall, the RTT considers that values will hold up well but that volumes will be impacted to an extent.  However, the direct consequences of the VAT rise in isolation will be much less significant than the wider consequences of the other fiscal changes which will have a far greater impact on consumer spending.

While the January increase is timed to allow the economic recovery to gain momentum, the RTT also warns that because of the need for retailers to build the increase into their pricing over the remainder of the year, inflation may rise more than the level the government is forecasting by then.  If this is the case, interest rates may need to be raised, creating a far more dramatic squeeze on consumer income.  This scenario, coupled with the impact of the future tax rises, would have a far more serious effect on retail spending than the VAT rise.

VAT is likely to be considered again in the budgets of 2011 and 2012 – particularly as a number of other countries in Europe have higher rates – with an extension to other categories of products a possibility, or the re-introduction of another band on luxury goods, last seen in the 1970s.  The January 2011 rise is unlikely to be the end of the story.

To what extent will retailers pass on the VAT increase?

There are differing views on how retailers will handle the VAT increase and whether they will attempt to absorb all or part of it to ensure pricing remains competitive.  In its modelling for the emergency budget, the Office for Budget Responsibility forecast that around one third will be absorbed by businesses and the RTT agrees that it will be consumers that bear the brunt of the cost.

During the first half of this year retailers have been trying to rebuild their margins after a long period of erosion: the RTT previously reported that margins started to improve in the final quarter of 2009 after two years of negatively impacting retail health.  Given that they still have some way to go with this and due to the number of current pricing pressures such as rising logistics costs, higher energy costs, Asian wage inflation and the weakness of the pound, retailers have limited ability to absorb the cost of the VAT increase.  These pressures are expected to become pronounced in the latter part of this year and in 2011.  Indeed a number of retailers, particularly in the clothing sector, have recently reported their concerns about the need, aside from the impact of the VAT rise, for significant price increases next year.

However, the VAT increase does provide a short term opportunity to strengthen margins over the coming months.  Food inflation is currently lower than the levels seen in 2008 and early 2009 (although under some pressure due to the impact of the poor wheat harvest starting to filter through), and hence is putting less pressure on consumer spending capacity.  Therefore, retailers arguably have more opportunity to raise prices on non-food goods without creating undue pressure on demand ahead of January 2011, allowing them to build up a cushion of margin.

In terms of absorbing the cost of the VAT increase when it arrives, there is unlikely to be a uniform picture and it will largely depend upon product category and competitive position.  Some products – such as white goods where product prices are easily comparable and competition is particularly fierce – will be harder than others to sustain any increase.

In contrast, categories such as health and beauty have been resilient throughout the downturn and should be able to withstand price increases without fear of consumers trading down/reducing their spending.  In the clothing sector the RTT believes that there will be little choice other than to pass on the full amount to consumers as most options to reduce costs, such as alternative sourcing, have been taken. Despite these steps, margins have already been significantly squeezed, and any further pressure on margin, beyond those already in the supply chain, is not sustainable.

There is also scope for retailers to use the VAT increase to change their offer to consumers.  Some may decide to “premium-ise” offering better quality products using the VAT change as an explanation for the price rise, creating a positive benefit for the retailer:  the VAT rise provides a good lever for retailers to make such changes.

Neil Saunders of Verdict Consulting comments: “Most retailers, especially those in fashion, are likely to start to incorporate the increase into autumn and winter prices this year. The cost hike is easier to hide in the higher prices of autumn/winter stock, which will allow some scope for discounting at the end of the year, and saves retailers having to make major ticket price adjustments during the January 2011 sales.”

Overall, the RTT believes that across all sectors of retail at least half of the cost will be passed on to consumers, a higher proportion than in January 2010.

What will be the impact on retail spending?

According to research by Verdict Consulting the cost of the VAT change per average adult is estimated to be £202, while price comparison website Kelkoo found that each household will be £425 worse off.  However, not all of this will translate to retail spending and the RTT suggests that consumers are more likely to reduce other areas of their expenditure such as leisure or travel instead, where the extra 2.5% tax amounts to considerably more added cost to them in absolute or £ terms.

For the retail sector, the RTT expects to see the most pronounced effect on spending strike in the month immediately preceding and following its introduction.

The short term will see a short “blip” in the volume and value of retail sales as consumers bring forward spending ahead of the rise and then reduce it the following month, fearful of noticeably higher prices.  Vicky Redwood, Capital Economics said:  “When VAT has risen before, consumers only spent more in the month immediately before the increase. And the rise was more or less offset by a similar fall in the month after the VAT rise.”  This can be seen from the chart below (and the history of the evolution of VAT in the UK in included in appendix 2).

Longer term, different groups of consumers will react differently according to their own circumstances: those on low incomes or the elderly may trade down and spend less, impacting some sectors more than others.  Tim Denison of Synovate comments: “The VAT rise won’t be the sole driver of change, but with prices likely to rise anyway, shoppers, particularly those suffering major changes to their circumstances, may alter their buying behaviour to the advantage of the value chains and supermarkets.”

Whether the VAT rise will have a long lasting impact on spending was debated at length by the RTT.  There were differing views of the extent to which values and volumes of retail sales would be impacted.  For the volume of retail sales not to suffer, the value of retail spending would need to rise in line with the proportion of the VAT rise passed on to consumers.  This would require consumers to find the additional spending capacity from other areas – either reducing other areas of consumer spending, which the RTT considers unlikely given the relative strength of retail versus non-retail consumer spending since the downturn began, or through reducing the saving rates.

The RTT considers that while gross margins in percentage terms could be maintained given that retailers have time to plan ahead, the volume of retail sales will be impacted to an extent and the uncertainty is around just how far demand would be depressed by the higher prices (i.e. by the consumer’s ability to absorb them).

However, whatever the consequential impact on sales values and volumes of the VAT rise in isolation, this will have minimal impact on retail health.  The RTT is at pains to point out that it is not the main driver of the outlook for the sector.  The much larger threats to spending come from the contraction in disposable income from the wider fiscal measures and whether interest rates rise in the short term.

The challenges for the retailer and the sector

The change presents a number of challenges for the sector and retailers will need to build their strategies around the VAT rise carefully, planning ahead to ensure margins are not adversely affected as well as getting their pre-Christmas build-up and promotional activity right.  Much will depend upon their market, the product they sell and their customer base’s ability to bear any increased price.

Cash flow and compliance will also need to be factored into plans, including the ongoing costs which are subject to VAT in their own businesses.

There are logistical challenges too, not least the time and cost associated with making changes to, in some cases, thousands of product lines.  Helen Dickinson, KPMG explains:  “Changing the rate of VAT is an unwelcome task for retailers at any time – the sheer logistical nightmare of needing to change product tags, shelf prices and systems and processes to ensure the appropriate declarations and payments are made.  Dealing with refunds of sales made before the VAT change will be particularly complex.”

While this is certainly an inconvenience and will have a short term impact on staff productivity, the RTT believes that this doesn’t impact businesses to a great extent as the retail sector is particularly adept at handling these types of pressures.

For the sector as a whole, establishing a clear view of retail sales immediately after the rise will be a challenge due to the disparity between reporting methods between businesses.  Nick Bubb of Arden Partners explains:  “With some retailers disclosing sales figures which are inclusive of VAT and some reporting exclusive of VAT the real effect on retail sales is hard to read. Those who quote VAT-inclusive sales figures will see sales rise by two/three percent at a stroke!”

On the upside, the increase will also provide a short term benefit to retailers’ cash flow immediately after it is introduced. Richard Lowe, Barclays Retail & Wholesale comments:  “Retailers are effectively unpaid tax officers and collect the VAT on behalf of the Government before paying it over to the HM Revenue & Customs.  In the interim they have the benefit of the additional two and a half percentage points of VAT it will raise.”

Conclusion

Contrary to many reports, the RTT believes that the VAT increase in isolation will have a relatively small – and, for some, a short term beneficial – impact.

January was chosen for the VAT rise as it was hoped that inflation would be under control and falling by then and that the recovery would be gathering momentum.  But retailers’ need and desire to increase prices in advance of the rise could detrimentally affect the headline inflation figures.  This, coupled with the additional supply led pressures already in the market and food prices, could panic the MPC into an interest rate rise, which in turn would threaten spending levels far more significantly than the VAT change itself.

The real danger to consumer spending comes from the aggregate impact of wider economic factors, not the VAT change.  Fiscal policy such as tax rises, welfare cuts and the public sector pay freeze and/or job cuts are likely to reduce household incomes by three percent according to Capital Economics with an accompanying effect on consumer confidence.  These, coupled with a premature rise in interest rates, will certainly seriously stall any prospect of recovery in the retail sector in 2011.

Mark Teale of CB Richard Ellis concludes: “Bearing in mind general taxation increases, concerns about future unemployment growth and inflationary pressures, in tandem with stagnant savings and pensions markets, consumer confidence looks set to deteriorate further, suppressing spending growth until there is a significant improvement in economic conditions.”

Part II: In detail – RTT members’ views on the effect of the VAT rise

Vicky Redwood, Capital Economics:  “VAT rise is just one part of huge fiscal tightening”

The rise in VAT is estimated to raise about £12bn a year for the Chancellor. Obviously that means that £12bn off either retailers’ profits or households’ incomes – or a sharing of the pain between the two.

Given what happened when VAT changed before, it looks like retailers might pass on about half of the increase (although the Office for Budget Responsibility has assumed that more like two thirds is passed on).  In that case, the £6bn knock to consumer incomes would be equivalent to a not insignificant 0.6 percent of annual household disposable incomes.  Whether retail spending will be affected depends on whether consumers react to this loss of income by spending less, or instead by borrowing more/reducing their saving.

At least the fact that the rise is delayed until January gives retail spending the chance to gather some momentum first. Indeed, spending should be boosted ahead of the VAT rise, as consumers bring forward spending to beat the hike.  That said, when VAT has risen before, consumers only spent more in the month immediately before the VAT increase.  And the rise was more or less offset by a similar fall in the month after the VAT rise.

What’s more, the big picture is that the VAT rise is just one part of a huge fiscal tightening that will severely affect households’ finances. In 2011/12 – when the fiscal squeeze is likely to be at its worst – the combination of tax rises, welfare cuts, a public sector pay freeze and public sector job cuts is likely to knock almost three percent off annual household incomes.  What’s more, the knock-on effects to consumer confidence – through, for example, increased job insecurity – could reduce the chances that consumers offset the falls in their incomes through reducing their saving rates.

On a more positive note, other countries that have endured sharp fiscal squeezes have often seen consumer spending hold up well.  Although household income growth was generally weak, consumers tended to reduce their saving rates – even if they were quite low to begin with.

Neil Saunders, Verdict Consulting:  “VAT rise was least worst option”

Given the state of the public finances, tax rises in some shape or form were always inevitable in the new government’s first budget; and, as suspected, the anticipated rise in VAT was one of the preferred mechanisms. While no tax rise is to be welcomed, on balance, this was probably the least worst option and certainly more favourable than a sharper rise in direct taxation.

The rise in VAT is estimated to raise an additional £12bn of revenue to the Treasury next year.  This, of course, will come from either the pockets of consumers or the margins of retailers.

It will inevitably weaken sales volumes in the near term as consumers are already starting to feel the pinch of sluggish income growth, higher inflation and a more uncertain economic outlook.  A rise in VAT will dampen spending power still further – to the tune of around £202 for an average adult.  That said, volumes for bigger ticket items will probably be boosted at the back end of this year as consumers bring forward purchasing to avoid the increase in early 2011.

The second point is the reaction of retailers. Given the state of retail margins and a rising cost profile for most businesses it is highly unlikely that retailers will absorb much of the additional cost.  Indeed, I estimate that, at best, retailers will absorb only one-fifth of the increase; that leaves the consumer bearing the brunt.  The matter of phasing is also important: most retailers, especially those in fashion, are likely to start to incorporate the increase into autumn and winter prices this year.  The cost hike is easier to hide in the higher prices of autumn/winter stock, which will allow some scope for discounting at the end of the year, and saves retailers having to make major ticket price adjustments during the January 2011 sales.

Those two points made, the third consideration is that despite the general increase in prices the sheer level of competition is likely to keep retail inflation under control over the medium term.  Consumers will have to get used to higher prices, but the return of inflation on a scale seen in the 1970s and 1980s remains firmly off the agenda.

Nick Bubb, Arden Partners:  “Effect on retail sales is harder to read”

VAT was widely expected to go up from 17½ percent, since it is such a big revenue earner for the Government and the key issues ahead of the Budget on June 22 ^nd were: a) what would the new rate be? b) when would it go up? and c) would VAT be extended to other areas?

On the first point some may have hoped that the Chancellor would stop at 19 percent, but 20 percent was a no-brainer, given much higher rates in Eire and elsewhere in Europe.  On timing, the industry successfully campaigned to get the inevitable increase delayed: it could have been Mon June 28th after all…But the Chancellor had to be mindful of the risk of adding to price inflation expectations at this point in the cycle and Tues Jan 4 ^th , whilst not absolutely ideal timing, gives retailers time to prepare the way, pass it on to consumers and avoid any gross margin dilution…just as they did with the increase back to 17½ percent this January. Retailers can also hype up the Christmas “beat the VAT increase” rush!  Many retailers will hold “VAT held” promotions through January, but they will be able to push up prices pre-Xmas to provide a cushion in their gross margins for such activity.

As for extension of VAT to food or any other zero-rated areas (like childrenswear or books), the Chancellor drew back.  So it could have been worse for Non-food retailers, whilst Food retailers escaped from the feared “fat tax”, although there are clear anomalies in the structure of VAT charging and extension of the VAT net is a risk for the Budgets in 2011 and 2012.

If the VAT rise is unlikely therefore to be a problem for retailers in terms of gross margins, because they will effectively “pass it on”, the effect on retail sales is harder to read.  The VAT rise will absorb a lot of the underlying/real spending power of consumers, even though retailers who quote VAT-inclusive sales figures will see sales rise by two/three percent at a stroke! Ex-VAT sales will be under pressure anyway in 2011, because public spending cuts are likely to lead to public sector job cuts in due course, but as long as interest rates stay ultra-low and consumers retain confidence in the government’s austerity strategy, the “V-shaped economic recovery” we have seen may not peter out as quickly as has been feared…

John Dawson, Universities of Edinburgh & Stirling:  “Widespread repercussion on marketing activity”

An increase in VAT has widespread repercussion on the marketing activity undertaken by retailers.  Not least in the ways that promotional activities are undertaken.

Now that World Cup promotions have ceased and with the acute pressure on consumer budgets there is a heavy emphasis on price based promotion.  This includes long period promotions and also some sharp, deep, short time promotions. The advance notice of the VAT increase allows time to develop a promotional strategy to span the pre and post periods of the VAT increase.  A promotional strategy is needed because the size of the increase is too big to be simply absorbed by price increases and cost containment.

Seeing the VAT increase as a promotional opportunity will help consumers and retailers to move to the higher tax regime more easily and less traumatically.  The promotional approach in quarter four pre-increase and in quarter one post-increase will need to be different.

Promotions that provide incentives to consumers to bring forward purchasing to before the Christmas period are likely not only in big ticket items but also in long-life FMCG goods where consumers are likely to be encouraged to increase their household inventories through multi-buy promotions.  This is likely to generate volume sales and also sell through items that may be subject to re-packaging or re-formulation after the VAT increase takes effect. For the retailers it also has the added benefit of potentially maintaining full price sales well into the run up to Christmas.  The explicit message of “buy now before VAT increases” and the implicit one of “buy now while stocks last” are likely to underpin strategic promotional campaigns.

Promotional activity after the VAT increase is likely to have a very different mode and message.  For an initial period of a few weeks price driven discounting is likely to be substantial both in direct price reductions and also in prices being held to pre-increase levels.  Obtaining sales even at the short term cost to margins is likely to be uppermost as the promotional objective of many retailers.  As product re-design, reformulations and re-packaging take effect so the balance between price and added-value promotions is likely to shift as the absorption of the VAT related price increase is, in effect, passed back to the suppliers.

Helen Dickinson, KPMG:  “No choice but to pass on rise”

Changing the rate of VAT is an unwelcome task for retailers at any time – the sheer logistical nightmare of needing to change product tags, shelf prices and systems and processes to ensure the appropriate declarations and payments are made.  Dealing with refunds of sales made before the VAT change will be particularly complex.  Many retailers also have a freeze on IT projects over December and January to minimize the risk of disruption to the business over the most crucial trading period of the year.  Research undertaken by the BRC indicates that making such a change cost the sector a particularly unwelcome £60m.  Additionally, making errors in the VAT return carries additional risks and penalties with HMRC.

The extent to which higher VAT means lower demand for goods and services as prices go up and companies’ margins are hit is debatable, but the theory is that retailers cut costs to protect profits so employ fewer people or hold-back on job creation.  Research by CEBR on behalf of the BRC estimates that by the end of 2011 there would be a £1.6bn (0.25 percent) hit to consumer spending and 30,000 fewer jobs in the UK (across all employment sectors).  After four years these figures would be £3.6bn less spending and 163,000 fewer jobs.

My perspective is that we will see some short term blips in retail spending – ensuring Christmas trading is positive is a big plus while January 2011 will be challenging – the longer term direct impact will be less significant – after all, how beneficial was the cut to 15 percent?

Most retailers will have no choice but to pass on the increase given the other evolving pressures on margin (eg rising logistics costs following capacity cuts, Asian wage inflation, the oil price, ongoing weakness of the pound) and hence we will see shop prices rising slowly over the latter part of this year as they try to build it into the pricing structure early, giving some short term relief to margin.  The broader impact on spending will come from the contraction in disposable income from the other fiscal measures and whether people reverse the current trend of repaying their debt and saving more.  My view is that the risk is all on the downside.

Richard Lowe, Barclays Retail & Wholesale:  “VAT a key factor of cashflow”

Cashflow is one of the most important aspects of running any retail business whether you are a large department store chain or a small independent retailer.  It is the single biggest reason why many retailers fail regardless of how strong the proposition is.  Therefore, managing cash flow is vital in the smooth running, survival and success of a retail or wholesale business.

VAT is a key factor in retailers’ cashflow so the Government’s decision to bring VAT in line with the European average from next year will, for most British businesses improve the cashflow they receive from sales.  Retailers are effectively unpaid tax officers and collect the VAT on behalf of the Government before paying it over to the HM Revenue & Customs.  In the interim they have the benefit of additional two and a half percentage points of VAT it will raise.

However, not all sectors of the retailer industry will benefit from increased VAT cashflows.  A significant number of items – those classed as essential goods and include books and magazines, food, children’s clothing and footwear – remain zero-rated for VAT purposes.

The benefits will also be offset, to some extent, by the VAT retailers and wholesalers are required to pay for goods and services in the first place. The cost of freight and shipping has also become more expensive and simply passing on this rise in costs to the end consumer is not straightforward.  The British consumer remains price-point conscious and the psychological draw of products for sale at £0.99 remains strong.

The question is whether retailers choose to retain consumer facing price points and squeeze cashflow or maintain margins.  Retailers will need to assess if and for how long they can afford to absorb the increase or pass it on to the price-sensitive customer.  The alternative will be for retailers to cost engineer the goods and services they offer.

In today’s retail landscape where competition is intense and cashflow management is of critical importance, effectively managing both the opportunities and risks presented by indirect taxes, such as VAT, is paramount.

Tim Denison, Synovate: “Little effect of VAT rise in isolation”

Nobody can speak with any certainty about the impact that January’s VAT increase will have on consumers’ shopping behaviour, but we can take note of similar occasions in the past.  In June 1979 and April 1991 (the latter during a recession), the level of disruption to retail sales proved to be minimal.  Sales volumes went up significantly in the month immediately preceding the hike and tumbled during the month of the rise itself. Before and beyond that there was no sustained change.  My view is that we are likely to see a similar picture this time around – a mad dash in December, followed by the handbrake going on in January.  Beyond a short-lived hiatus, people are likely to resume shopping in February as they otherwise would have done, according to their means and circumstances.

In truth, though shoppers might be anxious that they will notice a step change in prices on January 4th, the reality is that they won’t see one.  In some sectors, where spending has remained resilient during the recession, perhaps health and beauty, music, games and DVDs, price rises will have already been built in to the Autumn/Winter and Spring schedules.  Recent evidence suggests that for these goods most shoppers will not trade down or make do without.  The DIY and floorware sector is primarily driven by events in the housing market, so the VAT increase will be an irrelevance.  For higher ticket sectors such as white goods, the temptation will be to buy before January, though with consumer confidence so low, it will mainly be on a need-driven basis.  For those whose washing machines break down in the new year, they shouldn’t find themselves penalised; it is a very competitive sector and we are likely to see retailers and manufacturers absorb the cost rather than pass it on.

If we are to see any significant changes in behaviour, it might come in the clothing sector.  Retailers are already facing the prospect of raising prices over the autumn. They have taken the steps they can to prevent passing on rising costs, but the options are fast running out.  The VAT rise won’t be the sole driver of change, but with prices likely to rise anyway, shoppers, particularly those suffering major changes to their circumstances, may alter their buying behaviour to the advantage of the value chains and supermarkets.  The VAT increase will serve to increase the price differential between value and middle tier fashion retailers and unless shoppers detect a significant difference in quality and style, they will be tempted to trade down.

In conclusion, despite what I read and hear, I struggle to see how the VAT rise in isolation will radically affect shopping patterns once we move into February.  Plus ça change, plus c’est la meme chose!

Mark Teale, CB Richard Ellis: “Aggregate impact of VAT is of significance to the property market.”

There are two aspects to the pending VAT rise in relation to retail property: the direct impact on the retail property market (VAT is applied to property in various ways:  in supplying/servicing commercial property and in construction, repair and refurbishment for example) and the indirect affect on retail property demand that notionally occurs where VAT rates are changed.  Both feed through to property performance/costs.  As with the reduction in VAT during the recession, it will not be possible to credibly isolate the impact of the 2.5 percent January 2011 VAT increase from other factors influencing retail property markets including consumer demand.

It is reasonable to assume however that the VAT increase will have a minor negative impact on certain property market activities and that, on the consumer demand side, the impact will prove greater on big-ticket items than everyday-type food and non-food shopping, a negative for bulky-goods and housing related consumer expenditure.  Any sector profitability reduction undermines rental growth prospects to some degree.

Bearing in mind general taxation increases, concerns about future unemployment growth and inflationary pressures in tandem with stagnant savings/pensions markets, consumer confidence looks set to deteriorate further, suppressing spending growth until there is a significant improvement in economic conditions. From the property market perspective, the VAT increase is just one of a number of Government measures that will undermine consumer spending growth over the next three to four years: it is the aggregate impact, not VAT in isolation, which is of significance to the property market. Whether significant consumer retrenchment sets in before or after the VAT increase is a moot point. Media coverage of the Government’s deficit reduction programme will intensify following the autumn budget (which will probably bring further tax increases).

Some consumer spending (as in Christmas 09) will be brought forward to avoid the January increase, boosting Christmas 2010 sales, but demand is expected to flag early in 2011. As the full impact of the deficit reduction programme will take at least three to four years to feed through, in the absence of a sharp upturn in economic growth, consumer demand could remain fragile for a very lengthy period. Regional growth disparities are likely to widen significantly, affecting landlords and retailers alike.  High productivity modern space looks secure (chronic shortages persist) but secondary markets look vulnerable.

Appendices – Facts & Figures on VAT

1. EU standard VAT rates – How the current UK rate compares

Source: KPMG

2. A history of VAT in the UK

Source: Synovate & KPMG

RTT White Paper August 2010-1.pdf

Date Published: 9/1/2010 5:20 PM