Retailers hope fear of VAT increase will fuel weekend shopping spree

Shoppers are expected to go on a final "beat the VAT" spending spree this weekend as they try to save money on major purchases such as sofas and TVs before retailers start pushing up prices on Tuesday.

Argos, Comet and Dixons as well as DIY chains Homebase and B&Q are running last-gasp promotions to pull in shoppers. VAT is increasing from 17.5% to 20% just as higher rail fares and petrol and domestic fuel price rises kick in.

Richard Hyman, strategic retail adviser at Deloitte, said it would be one of the busiest shopping weekends. John Lewis has already broken records with its sale. "There is pent-up demand," said Hyman, adding that many retailers had been left with more stock than expected as a result of the pre-Christmas snow.

The bad weather came at a time of year when retailers rake in most of their profits, and the majority of store chiefs are anticipating that sales will be lower than in 2009, according to a recent study by the British Retail Consortium.

The retail sector employs nearly 3 million people and there are concerns the tough environment could see smaller chains and independents go to the wall as consumers struggle with the economic realities.

The VAT rise will add an estimated £158 a year to essential bills for the average household, according to research by uSwitch.com. VAT aside, food and clothing prices are already going up as retailers import inflation from overseas caused by increases in labour costs and the price of raw materials such as cotton in east Asia.

The shadow chancellor, Alan Johnson, has called for the VAT rise to be delayed amid fears public spending cuts could hamper the country's recovery. "The increase in VAT will hit people hard when people can least afford it," he said.

Source : Zoe Wood - Guardian.co.uk