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Rachel Parkin: Consumer spending is holding up well
Retail sales dipped again in May, after growing in March and April which, to be honest, was a fairly strong performance given the current economic climate. It indicates that consumer spending is still holding up surprisingly well.
Retail sales dipped again in May, after growing in March and April which, to be honest, was a fairly strong performance given the current economic climate. It indicates that consumer spending is still holding up surprisingly well.The warmer weather that we missed out on over the past two years, the trend for staycations and increased interest in our homes, is doing most retailers a lot of good, allowing them to outperform the poor expectations assumed at the start of the year.
The VAT rate is back in the news again this week as it's scheduled to return to its pre-recession rate of 17.5 per cent on January 1, 2010. While retailers were a bit lukewarm about the VAT cut when it happened, they're anxious not to lose it now.
The fight is being spearheaded by Sir Philip Green, who owns a large portion of our high streets. He believes that "VAT is the single most important thing threatening retailers' ability to trade through the recession."
While I can't say I agree with him – as I'd cite greedy landlords, the devalued pound and the general malaise in the UK – despair at our latest government scandal etc as rating higher than a 2.5 per cent increase in prices, but then to be fair we don't sell high priced ticket items.
At the time of the VAT rate reduction retailers grumbled that it would have little effect on customer spending patterns. But now, the prospect of having to "sell" the higher rate again, coupled with inflation and the psyche of the recession mindset customer is making them a bit nervous.
There are also fears that the change will come about earlier – an early General Election, for example, could make this happen, or possibly at a higher level than before the reduction… as let's face it, the Government is going to have to take some tough decisions about how to reduce the national debt burden we are carrying.
One possibility is inflation, and a series of spending cuts or tax raises to get some of this "lost money" back in the government coffers. A likely tool to achieve this is VAT as the reduction in the rate to 15 per cent costs about 12.5 billion to support for just one year.
It's a delicate situation, as a return to the previous VAT rate is likely to be perceived badly, both by consumers and the markets, so there's a danger that any bonhomie and Christmas spirit that retail generates in December is at the risk of impending doom in January, with price increases, the slowest time of the year and not too much to look forward to.
The big business view is that it would probably be better to leave the VAT rate alone for a year or so. It is, after all, an inclusive reduction, by which I mean everyone benefits in the same way.
From my little corner of the world from a retail and wholesale perspective I'm more concerned with greedy landlords, and what we can actually buy with one great British pound. The answer is less and less as time goes by. . . This has led to us having to drop suppliers in certain countries because buying in euros, for example, has become prohibitively expensive.
Looking around locally, I think that more investment in beautifying our shopping areas, making them more of a destination, than an endurance test and creating a safe and enjoyable city centre would do as much for retail as holding off on the return of the old VAT rate. At a push, I’d say high rents are the single biggest factor in what stops interesting retailers from taking up space in our city centre. but we’re not alone in that aspect.
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