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Business News

Shoppers flock to sales to beat VAT rise in 2011

Thousands of cash-strapped shoppers braved sub-zero temperatures after Christmas to pick up significant bargains in the sales before next month's VAT increase.

More than 800,000 people shopped in London's West End on "Mega Monday", the biggest day of the retail calendar, while major shop chains have cut prices by up to 75 per cent.

Big retailers have advertised their sales as a festive rush to avoid paying an extra 2.5 per cent on products, as VAT is increased to 20 per cent on 4 January.

The move has proved a huge success, with shoppers queueing through the early hours. Some £323m was spent on Boxing Day alone. Even small goods, where savings from the sales are in pennies rather than in the thousands of pounds, are selling rapidly .

Stephen Robertson, the director general of the British Retail Consortium (BRC), said that the last time VAT rose – from 15 to 17.5 per cent on 1 January this year – shoppers snapped up virtually all deals on offer.

"Quite a few chief executives are expecting a bumper first week and a half of the sales," said Mr Robertson. "They have told me that even items like a £30 jumper saw an increase in demand last year – which is surprising given that they would save less [in VAT] than the cost of a bus there." Demand is even greater this year as the severe cold snap deterred shoppers from going to the high street and shopping centres in the run-up to Christmas. This has meant that there is a pent-up demand of people with saved-up cash to go on spending sprees.

The rush, during which Selfridges, the Oxford Street shopping landmark, made 167 sales per minute, is vital for small shop chains. They need to bring in the cash to cope with what is likely to be a dreadful 2011, with margins tighter than ever and disposable income hit by higher inflation and unemployment.

Tim Danaher, the editor of the trade publication Retail Week, said: "There are lots of threats next year that could derail retailers, such as public-sector job cuts, the increase in VAT and sourcing costs – such as labour in China – going up dramatically."

BRC research has found that around two-thirds of retailers believe that their tills will be emptier in 2011 than they were this year.