Retailers to hide price hike with VAT rise

Caroline Cassidy

As if consumers haven't got enough to worry about with today's VAT rise, industry experts have warned that retailers may hike their prices amidst the confusion. As of today, VAT has risen from 17.5 per cent to 20 per cent as the Government attempts to claw back some much-needed funds.

Woman with purse
Woman with purse

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But restaurants, shops and mobile phone companies are also set to up their prices by between five and eight per cent.

A study by KPMG Performance & Technology found that around 60 per cent of retail managers are planning on increasing prices above the 2.1 per cent VAT rise, presumably hoping that customers won't notice.

Martin Scott, from KPMG, told The Telegraph: "If everyone was enjoying a healthy time of it, most retailers and manufacturers would just soak up the price increases and not pass them on to consumers.

"But they have been discounting for so long it is impossible to see how they can afford not to pass on the VAT increase, and some more. I'd be very surprised if we didn't see the majority increase prices by far more than the VAT jump."

Many companies are already announcing sizeable price increases. The 02 network has declared that the cost of a text message will rise from 10p to 12p (a rise of 20 per cent) while some members at Fitness First gyms have been hit with a 25 per cent increase in fees.

But Mr Scott believes the prices rises are a necessary evil, adding: "I don't think this is a profit grab by retailers. This has come after 18 months of heavy discounting, and these low prices are just not sustainable. Manufacturers and retailers are being hit by rising fuel prices. Ultimately a large chunk of these price rises will hit the consumer."

For the average shopper though, the VAT rise, petrol price hike, sizeable increase in train fares and higher energy bills all add up to a fairly bleak start to 2011.

What do you think? A necessary price hike by retailers or unfair on cash-strapped shoppers? Leave your comments below...