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High Street stores plan to hold off VAT introductiuon

John Lewis, Marks & Spencer, Tesco and other big retailers have said they will delay the introduction of today's VAT increases on most or all of their products for at least a few weeks as they wait to see what action their rivals take.

As the VAT rate rose from 17.5% to 20% at midnight, retailers were gearing up to slap on most of the price increases by stealth in a phased process expected to take several months to complete.

Despite some restraint at first, retailers are eventually expected to pass on the VAT rises in their entirety, adding about 6p to a pint of lager, about 3p to a litre of petrol and several hundred pounds to the cost of a new car.

Many new products, such as the spring clothing ranges now starting to appear in the shops, will automatically be sold at a higher price, but increases on many existing lines are likely to be postponed until the middle of January, retail experts said.

Marks & Spencer said the VAT increases would be automatically applied to new products in its stores from today, with the prices on some existing products "being changed in stages over time" and others, such as an £8 pair of cotton leggings, likely to be frozen for the foreseeable future.

Debenhams said it would immediately pass on the increased VAT rate on "new season products" in its stores. On existing items, a spokesman for the retailer said: "We will be watching closely to see what others on the high street do to ensure [our] pricing remains competitive."

Sainsbury's pledged not to increase the price of any item in its home and lifestyle ranges in January. Tesco said it would freeze VAT on all its non-food products until 25 January and would begin phasing in price rises after that.

John Lewis said it would not initially pass on the VAT rise on any product, because of its pledge to "never knowingly" sell at a higher price than competitors. However, once its rivals had begun factoring in the increases, it would follow suit.

Andrew Murphy, retail director at John Lewis, said: "We won't see many prices going up tomorrow because the media spotlight on the subject has made it highly sensitive.

"The big players will do a bit of 'wait and see' and will look to hold down prices and take the hit to their profit margins for at least a week or two. But by the end of the month … the majority of the prices will be in place."

Not all retailers will be phasing in the rises. Amazon said it would immediately increase the price on all eligible items to reflect the full VAT rate.

Source : Tom Bawden - Guardian.co.uk

04 January 2011
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