Alistair Darling will go from super hero to super villain if he brings the 17.5% VAT rate back on 31 December. Alex Black, Joanne Grew and James Ball reveal the painful impact of a badly-timed biff to the industry - and consumers
It's the stroke of midnight on New Year's Eve. Across the UK glasses are clinking and fireworks are ready to welcome in the start of 2010. But Lesley Brown and her husband William won't be partying. The owners of a village store in Barnstaple will be starting an all-night sticky label vigil, printing new prices on an estimated 7,000 stock items, ready to welcome bleary-eyed revellers for the New Year's Day trade at 7am the next morning.
Until The Grocer launched its Push Back the Tax campaign last week, Brown was unaware of the timing of the ticking VAT bombshell, which means VAT reverts to its old 17.5% level on 1 January. The Grocer's campaign includes a call on the Chancellor to delay the tax hike by just one month to alleviate the enormous burden and the many hidden costs that a 31 December deadline would deliver.
"We are a modern convenience retailer, with an EPoS system, but we will have to manually change the prices on more than 7,000 stock items, print new labels and attach them.
"We estimate it will take six hours. We can't ask the staff to do it as it's not their job. And we've got no choice but to do it overnight, as the prices will be wrong if we do it earlier, and there's no way we will close early as it's a very busy time of year for us, with revellers popping in for last-minute drinks and snacks."
It's not just local c-store owners that will be affected by the Treasury's apparently "arbitrary" decision to reintroduce the higher VAT rate over the festive season. Shopfloor workers across the country will be asked to do yet more overtime. Supermarket store managers aren't even sure if it will be physically possible to effect the switch in time.
When VAT was reduced from 17.5% to 15% in November 2008, recalls Robert Winfield, store manager at Tesco Extra in Cumbernauld, Scotland, "we phased the price drop over four weeks, which we had negotiated with head office. We haven't heard how we would do it now."
Asda Dunbar store manager Scott Maconachie also has major reservations. "It took us two or three days last time, but we held lines back and didn't do it all at once. If we had to do everything at the same time, it would take a lot longer, require a lot more staff and cost a whole lot more."
The timing of the switch this time is even more critical because, in addition to coming at the busiest (and most expensive) time of year for retailers, there's a real risk of upsetting customers. Where last time out-of-date shelf-edge labelling and general signage meant unknowing shoppers were in for a pleasant surprise at the till, as the VAT saving was calculated at the checkout, this time the surprise would be a nasty one, as it involves a price hike. Stores could find themselves confronted by hordes of irate customers banging on the customer services desk demanding to know why they had been overcharged. Worse still, retailers could find themselves at the wrong end of a Trading Standards investigation.
The timing of the switch is also likely to affect availability over the key Christmas period, say store managers. "We want to concentrate on keeping the shop floor full in December, and being there for the customers," says Feroz Patel, store manager at Asda Eastlands in Manchester. "The last thing we want to be doing is getting distracted by carrying out price changes."
A lot of stores employ specialist teams to handle pricing implementation. Asda's Maconachie has a five-strong 'process team'. "It's technical stuff that has got to be right and they are highly trained. You can't just pull people off the shop floor. We could in theory train up other people to help, but this would take man hours to do and would take customers service staff off the shop floor at the busiest time of the year."
Marks & Spencer CEO Sir Stuart Rose, who earlier this month described the timing as "insane", was among the first to lend his support to The Grocer's campaign this week. "The government says it is listening to business. Well, it should listen now," he warned.
As well as the inconvenience, Rose also fears poor sales in January as shoppers turn their back on thousands of food and non-food products that have gone back up in price at a time when they are most feeling the pinch.
Wholesalers also fear business will be adversely affected. Simon Hannah, director at JW Filshill, believes customers will disrupt their normal ordering patterns to cope with the chaos of repricing. "This happened when VAT went down last November, and I expect the same when the price goes up."
With so many factors to consider - the narrow time window, the higher cost of overtime, the potentially adverse impact on January trade - it's impossible to say exactly how much a 1 January VAT hike will cost the industry, but experts believe it will be significantly higher than the £90m estimated bill for implementing the 2.5% VAT reduction last November.
And what of the loss to the Treasury? The Centre for Economics and Business Research estimates that the 13-month VAT reduction cost the public coffers £4.5bn. Having stepped in to help the industry at a critical time, it now wants to claw some of that money back, and believes that, having given businesses 13 months' notification, retailers this time round will have plenty of time to plan.
However, based on the £7.6bn of VAT raised by the big four in VAT in the 2007/2008 financial year, The Grocer calculates that the cost of a one-month delay would be as little as £80m.
And it would make all the difference, believes Asda's Maconachie. "Would a month's delay help? Absolutely. The workload is immense at Christmas. We've got shops to run." Less overtime, fewer customers, a quieter trading period, and the first post-Christmas pay packet would make 31 January a far less painful blow.
"Is changing 20,000 prices on 31 December the right thing to do for the customer? No," says Tesco's Winfield. "Christmas is not a time to be beating up on grocery retailers, especially when they have done so much to mitigate the impact of the recession on people's wallets."
That's why The Grocer is calling on Alistair Darling to delay the VAT hike until the end of January. Sign up now.
It's the stroke of midnight on New Year's Eve. Across the UK glasses are clinking and fireworks are ready to welcome in the start of 2010. But Lesley Brown and her husband William won't be partying. The owners of a village store in Barnstaple will be starting an all-night sticky label vigil, printing new prices on an estimated 7,000 stock items, ready to welcome bleary-eyed revellers for the New Year's Day trade at 7am the next morning.
Until The Grocer launched its Push Back the Tax campaign last week, Brown was unaware of the timing of the ticking VAT bombshell, which means VAT reverts to its old 17.5% level on 1 January. The Grocer's campaign includes a call on the Chancellor to delay the tax hike by just one month to alleviate the enormous burden and the many hidden costs that a 31 December deadline would deliver.
"We are a modern convenience retailer, with an EPoS system, but we will have to manually change the prices on more than 7,000 stock items, print new labels and attach them.
"We estimate it will take six hours. We can't ask the staff to do it as it's not their job. And we've got no choice but to do it overnight, as the prices will be wrong if we do it earlier, and there's no way we will close early as it's a very busy time of year for us, with revellers popping in for last-minute drinks and snacks."
It's not just local c-store owners that will be affected by the Treasury's apparently "arbitrary" decision to reintroduce the higher VAT rate over the festive season. Shopfloor workers across the country will be asked to do yet more overtime. Supermarket store managers aren't even sure if it will be physically possible to effect the switch in time.
When VAT was reduced from 17.5% to 15% in November 2008, recalls Robert Winfield, store manager at Tesco Extra in Cumbernauld, Scotland, "we phased the price drop over four weeks, which we had negotiated with head office. We haven't heard how we would do it now."
Asda Dunbar store manager Scott Maconachie also has major reservations. "It took us two or three days last time, but we held lines back and didn't do it all at once. If we had to do everything at the same time, it would take a lot longer, require a lot more staff and cost a whole lot more."
The timing of the switch this time is even more critical because, in addition to coming at the busiest (and most expensive) time of year for retailers, there's a real risk of upsetting customers. Where last time out-of-date shelf-edge labelling and general signage meant unknowing shoppers were in for a pleasant surprise at the till, as the VAT saving was calculated at the checkout, this time the surprise would be a nasty one, as it involves a price hike. Stores could find themselves confronted by hordes of irate customers banging on the customer services desk demanding to know why they had been overcharged. Worse still, retailers could find themselves at the wrong end of a Trading Standards investigation.
The timing of the switch is also likely to affect availability over the key Christmas period, say store managers. "We want to concentrate on keeping the shop floor full in December, and being there for the customers," says Feroz Patel, store manager at Asda Eastlands in Manchester. "The last thing we want to be doing is getting distracted by carrying out price changes."
A lot of stores employ specialist teams to handle pricing implementation. Asda's Maconachie has a five-strong 'process team'. "It's technical stuff that has got to be right and they are highly trained. You can't just pull people off the shop floor. We could in theory train up other people to help, but this would take man hours to do and would take customers service staff off the shop floor at the busiest time of the year."
Marks & Spencer CEO Sir Stuart Rose, who earlier this month described the timing as "insane", was among the first to lend his support to The Grocer's campaign this week. "The government says it is listening to business. Well, it should listen now," he warned.
As well as the inconvenience, Rose also fears poor sales in January as shoppers turn their back on thousands of food and non-food products that have gone back up in price at a time when they are most feeling the pinch.
Wholesalers also fear business will be adversely affected. Simon Hannah, director at JW Filshill, believes customers will disrupt their normal ordering patterns to cope with the chaos of repricing. "This happened when VAT went down last November, and I expect the same when the price goes up."
With so many factors to consider - the narrow time window, the higher cost of overtime, the potentially adverse impact on January trade - it's impossible to say exactly how much a 1 January VAT hike will cost the industry, but experts believe it will be significantly higher than the £90m estimated bill for implementing the 2.5% VAT reduction last November.
And what of the loss to the Treasury? The Centre for Economics and Business Research estimates that the 13-month VAT reduction cost the public coffers £4.5bn. Having stepped in to help the industry at a critical time, it now wants to claw some of that money back, and believes that, having given businesses 13 months' notification, retailers this time round will have plenty of time to plan.
However, based on the £7.6bn of VAT raised by the big four in VAT in the 2007/2008 financial year, The Grocer calculates that the cost of a one-month delay would be as little as £80m.
And it would make all the difference, believes Asda's Maconachie. "Would a month's delay help? Absolutely. The workload is immense at Christmas. We've got shops to run." Less overtime, fewer customers, a quieter trading period, and the first post-Christmas pay packet would make 31 January a far less painful blow.
"Is changing 20,000 prices on 31 December the right thing to do for the customer? No," says Tesco's Winfield. "Christmas is not a time to be beating up on grocery retailers, especially when they have done so much to mitigate the impact of the recession on people's wallets."
That's why The Grocer is calling on Alistair Darling to delay the VAT hike until the end of January. Sign up now.
Gee... did it work?
Whether the temporary VAT cut was worth the substantial cost continues to be a matter of debate.
It cost the Treasury up to £12.5bn in gross VAT receipts this year but other tax changes and the extra demand for goods generated by the lower VAT rate mean it is expected to end up costing the government about £4bn to £5bn net.
On top of this, the BRC estimated the cost to retailers of changing prices at about £90m, predicting a comparable bill when prices go back up. Christmas overtime means this figure will be higher if the planned reversion date does not change.
Most retailers passed on the VAT cut to customers, as urged by the government, leading to the lower prices it hoped would boost demand. However, about a third of retailers did not reduce their prices, according to estimates from the ONS. Waitrose took this approach, saying it had instead invested the saving in larger price cuts on a few hundred key lines.
Prices of items subject to VAT have fallen on average by 1.2%, according to estimates from the Institute for Fiscal Studies, which adds that past experience suggests this would cause people to buy 1.2% more goods and services.
"Those dismissing the VAT cut as a failure ignore the likelihood that things would have been even worse without it," says an IFS spokesman.
Whether the temporary VAT cut was worth the substantial cost continues to be a matter of debate.
It cost the Treasury up to £12.5bn in gross VAT receipts this year but other tax changes and the extra demand for goods generated by the lower VAT rate mean it is expected to end up costing the government about £4bn to £5bn net.
On top of this, the BRC estimated the cost to retailers of changing prices at about £90m, predicting a comparable bill when prices go back up. Christmas overtime means this figure will be higher if the planned reversion date does not change.
Most retailers passed on the VAT cut to customers, as urged by the government, leading to the lower prices it hoped would boost demand. However, about a third of retailers did not reduce their prices, according to estimates from the ONS. Waitrose took this approach, saying it had instead invested the saving in larger price cuts on a few hundred key lines.
Prices of items subject to VAT have fallen on average by 1.2%, according to estimates from the Institute for Fiscal Studies, which adds that past experience suggests this would cause people to buy 1.2% more goods and services.
"Those dismissing the VAT cut as a failure ignore the likelihood that things would have been even worse without it," says an IFS spokesman.
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