The VAT rise to 20% from 17.5% is likely to hit the poor the hardest according to opponents of the VAT increase. Though the richer households spend more overall, taxable goods represent a significant outlay of the income of poorer families. Though it has been pointed out that this is not the hardest blow to poorer families which are already coping with the freeze in child benefit, loss of family tax credit, and a real terms cut in the higher rate threshold, the impact of the VAT will not be welcome by many.
Retailers too, are preparing for a significant loss in turnover. Kelkoo has suggested that retail sales will fall around £2.2 bn in the first three months of the year because of the rise in VAT.
The British Retail Consortium (BRC) also feel that the first three months of the year will be quiet due to the VAT rise, with many shoppers buying goods during the period between Christmas and New Year.
"We are expecting to see a very quiet period over the next few months," said the BRC's Jane Bevis. She also warned that business were feeling the effects of the governments austerity measures which include transport costs, commodity prices, business rates and national insurance costs all rising.
The current VAT rise does not affect food, children’s clothing, newspapers, or magazines.
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