Giving retailers only a few days notice, the Government decided to temporarily cut the rate of Value Added Tax (VAT) by 2.5 per cent in an attempt to curtail the rapid downward trend of the UK economy. Cutting the rate of VAT was supposed to encourage shoppers to come out in their droves before Christmas and spend some of that money they have been hoarding over recent months. But with barely enough time to consider the implications of the cut, retailers have been forced to roll out the reduction in VAT in rapid time.

 

Changing prices is not that simple a matter for many retailers. Even for those with sophisticated computer systems, who can make these types of adjustments at the flick of a switch (well probably a button), there is still the issue of price points to think about. Items that were previously priced at one of those shopper-friendly or shopper-tempting values like nine pounds 99 pence would suddenly become something cumbersome like nine pounds 78 pence. Retailers would of course be forgiven for leaving prices exactly as they were for smaller priced products as, like the above example, a 21 pence cut is hardly seen as significant.

 

For less sophisticated retailers, all kinds of problems have been loaded on them by the new rate. Some said that they had hoped to get around the issue by offering customers a discount at the till, but were held back by computer systems that could only handle cuts of round percentages. Others have been forced to re-label hundreds of thousands of items.

 

The cost of all this re-pricing is another consideration. Shoppers may save a few pence on each item but it's the retailers who are having to foot the bill for all the changes. And all this at their busiest time of the year. Early December is the time when retailers have their biggest stocks, when they have their longest opening hours and need to focus on selling their wares rather than implementing badly-timed Government initiatives.

 

And, wait for it, there is more pain ahead. The VAT cut is only a temporary one. Everything will revert back in 13 months time and retailers will be forced to go through the whole exercise again at the end of December 2009, exactly when they would be hoping to give their staff a few days off between the end of the Christmas rush and the onset of the New Year sales.