Opinion: Will the increase in VAT in January give retailers a bumper Christmas?

The rate of VAT jumps from 17.5% to 20% in January, leaving retailers to guess whether consumers will try to offset the 2.5% rise by bringing their bargain hunting forward from January to December.

YES - ANDREW MARSDEN, Brand consultant

Unquestionably yes ... and it has already begun. Last year, as a result of the lowest interest rates in living memory on mortgages and the like, consumers had lots of disposable income, but lacked the confidence to spend. Unprecedented deals on cars and a reduction in VAT opened wallets. This year, confidence is stronger but there is less disposable income around, given increasing unemployment.

The prospects for next year are not exciting. The VAT increase will be followed by January's credit card and fuel bills. We can expect progressively higher interest rates as the banks stretch their margins, more unemployment as the public sector cuts bite, higher tax rates and national insurance rises.

No wonder we now see all the 'beat the VAT increase' ads on everything from furniture to electricals, from cars to holidays, as retailers compete to get the available consumer spend early - even at lower margins.

I forecast a festive flurry of spending up to Christmas followed by an extended, damp and miserable spring.

NO - ANTHONY HOPPER, Managing director UK, Saatchi & Saatchi X

With so many different forces at play this year, it's difficult to predict people's spending. Accountant Deloitte predicts a 1% year-on-year increase this Christmas, with a static 2011.

I can't see the VAT rise affecting pre-Christmas purchasing behaviour. People are busy thinking about presents, food and drink - purchases that can't wait until the New Year. I think the biggest impact will be just between Christmas and the New Year, when shoppers will make the most of the lower VAT rate and sale prices, especially on clothing and big-ticket items, such as white and brown goods.

One long-term trend we can see is people searching for best value. Shoppers are now sharing vouchers and scouring the web for good deals. The outlook remains bleak for many, with below-inflation pay increases failing to match rising costs of living.

More than ever, brands and retailers need to understand what shoppers really care about. Price is a big part of the equation, but it isn't the only contributor to true value.

NO - BREFFNI WALSH, Marketing director, Pets at Home

Throughout the economic gloom consumers have been managing their cash carefully, perhaps spending a bit more freely around pay weekends and big events in their lives.

The 2.5% VAT rise simply isn't enough to provoke a spending splurge before 1 January - savvy shoppers will be holding out for sales bargains to appear in the New Year.

Having said that, I don't predict a bad Christmas for retail. Last year's extreme weather so close to Christmas depressed sales at a crucial time, so I would expect to see more buoyancy in like-for-like sales as we approach the last two weeks before Christmas.

Pets are part of the family, so at this time of year, pet brands such as ours get lots of interest in gifts for animals.

Thanks to our focus on service and advice, we're confident that we're set to make the most of Christmas 2010, regardless of the VAT rise.

NO - BRIDGET ANGEAR, Joint head of planning, Abbott Mead Vickers BBDO

I predict a bumper Christmas, but not caused by the VAT rise.

Every year there are predictions that consumer spending on Christmas will drop. Yet the doom-merchants never have their way. Each year consumers confound their predictions and the post-Christmas headlines invariably read 'Retailers celebrate their best-ever Christmas' as consumers part with even more money in pursuit of their dream of a perfect Christmas.

Christmas has an unstoppable momentum all of its own; this year will prove no different.

In fact, faced with all the economic gloom, consumers will probably feel even more justified in splurging a little. The January rise in VAT is just one final excuse to spend now and pay back later. Later being January, when the VAT rise will most probably exacerbate the post-Christmas slump. A mini boom and then a slump? Not that much of a surprising Christmas after all.

The Marketing Society is the most influential network of senior marketers dedicated to inspiring bolder marketing leadership.


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