VAT cuts creeping back up again
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In November 2008, Alistair Darling announced that VAT would be cut from 17.5 per cent to 15 per cent in a bid to get us spending again.
By the end of March 2009, that VAT cut should have put an extra £3.8 billion back into our pockets. When the cut came into effect on 1 December 2008, prices were being cut at the till, so £9.99 suddenly became £9.78.
But since the New Year, some viewers have spotted that in stores where prices did come down after the VAT cut; they seem to be creeping back up again.
Price rise
Wendy Fordham noticed that too. She shops at Matalan and when she purchased a bathmat in January costing £5, she was given back 11p at the till to account for the VAT cut. However, when she went to buy another mat three weeks later, the price had risen back to £5.
Some of you say that prices have gone back to their old levels at other stores too. Like at Next, the high-street fashion and home ware store. Prices did initially come down there but viewers told us that some prices have recently risen again.
Both Next and Matalan say they're not being sneaky. They blame price rises on the increased costs they're now paying for stock which, effectively, has cancelled out the VAT reduction.
Not everything
To make things more confusing, when we asked some of the other big high-street names if they really had passed on the VAT cut, they told us they had, but not on everything.
Supermarket chain Asda is making reductions more selectively rather than across the board on its products which attract VAT. It has lowered the price of what it calls its "essential food and clothes items", which it says will benefit customers more.
It's the same at McDonalds. Buy a Big Mac now and it's 10p cheaper than in November. But some things on the menu haven't gone down at all. McDonalds says it's targeting price cuts on the ones customers buy more often, and that the cuts it's making are often more than the 2.5 per cent VAT reduction.
Complaints
Watchdog has also received complaints about odd ways other big companies have passed on the VAT cut.
Some members at David Lloyd gyms have told us they'd have liked to see their monthly fees reduced to account for the VAT reduction. David Lloyd says that's too complex since customers are on a large number of different price plans. So instead, it's taken five per cent off the cost of things their customers will pay extra for, like a massage or a facial.
Orange experienced technical difficulties when the VAT cut was announced and so couldn't pass on the savings to its broadband customers until February. When it did work out how to do it, it didn't backdate the £500,000 savings customers would've made. It gave the money to its charity instead. That's a generous offer, but some customers claim they should've been given that choice instead.
Matalan's response
"Matalan has been passing on the 2.5 per cent VAT reduction to its customers since the reduction came into effect on 1 December 2008. Matalan initially passed this directly onto its customers at the till point when customers paid for their goods. Now the new Spring ranges have been launched across the business, Matalan stopped this as it's incorporated the 2.5 per cent reduction into its prices.
"While the rate of VAT reduced by 2.5 per cent from 17.5 per cent to 15 per cent, this did't mean that prices decreased by 2.5 per cent. Matalan is required by law to charge VAT inclusive prices; this means that the price customers see in store includes the tax the government is charging customers.
"The bathmat in question that has a £5 price ticket, for example, is really a bathmat priced at £4.26 on which the Government charges a customer 74p of tax. Reducing the tax rate by 2.5 per cent only reduces the tax part of the price on the price ticket: the £5 bathmat decreased to £4.89 because the government is now charging 63p in tax instead of 74p.
"Matalan's new spring ranges have been launched which have incorporated the VAT reduction into the ticket prices. However, cost prices have changed in the past few months and many have increased.
"As a result of Government policy, the pound has been significantly devalued versus the dollar by as much as 30 per cent, which has resulted in a significant increase in costs. Matalan decided that it would not pass on the full cost price increases to its customers, but as in many cases those increases significantly exceeded the small reductions in prices caused by reducing VAT.
"Even after Matalan absorbed some of the cost price increase, some products have ended up being at the same price as before the VAT reduction, as was the case with this bathmat in question that is now priced £5.
"Matalan assures its customers that it has passed on the change in rate of VAT and remains committed to absorbing as much cost pressure as possible to deliver fantastic value for our customers."
Next's response
"When the VAT reduction was introduced by the Government on 1 December, we took the decision not to re-price all of our products to reflect the decrease, particularly as many of our products would not be continued into the new season, and so an adjustment to the value of the VAT decrease was applied at the till point from 1 December until close of business on 24 December.
"Our sale prices were not calculated until after the Government announced the change to the VAT rate and we were therefore able to incorporate the new rate into our sale prices, which are all at least 50 per cent lower than the original selling price.
"The beginning of our new season is a point at which we'd commonly review the prices of any items being carried forward from the previous season, and when doing so we have had to take into consideration the reduction in value of sterling against both the euro and the US dollar, which has meant that our cost prices have increased. Those increases in costs are therefore being reflected in the pricing of our products for the new season and whilst we are still passing the VAT reduction onto customers, the prices shown on the garment labels are correct and no further reductions will be applied at the till point with effect from 26 December 2008 when stores re-opened after the Christmas break. I would also advise that the increase in our costs has been higher than the value of the VAT reduction, but we're not passing the full increases on to the customer and are bearing the remainder ourselves."
Asda's repsonse
"When the Government first announced its temporary cut in VAT, we immediately applied a discount to all Asda and George products that were liable to VAT, at the point of purchase.
"Now we've had time to calculate the benefits of this reduction to our customers, we have discovered that we can target the savings more effectively by investing the VAT reduction into lowering prices on essential food items (many of which are not VAT-able) and on essential clothing.
"We are passing on the equivalent of the 2.5 per cent VAT savings, in full, to our customers through these reductions and we 've found that this is the best way to use the money to stimulate the economy in the way the Government intended.
We've spoken to our customers about the changes we 've made and they tell us that they'd rather enjoy larger reductions on essential food and non-food items they have to buy week in, week out, than save a few pennies on one off items."
McDonald's response
"We've been passing on the full VAT price reduction in a way that we consider is of most value to our customers by concentrating on a range of menu items that are popular with all of our customers. With our prices being relatively low we felt it was better to cut the price of our most popular menu items rather than passing on a penny here and a penny there. This way our customers will have had a more meaningful reduction - for example 10p off our Big Mac.
"We are a franchised business, franchisees set their own prices and therefore prices can vary from restaurant to restaurant. We did increase prices on a handful of occasions in 2008 because of the rampant increase in food costs that we were subjected to, just like the grocery market. Overall we kept 2008 price increases below inflation in order to help our customers as much as we could. VAT is a separate issue and we did pass the cut through to our customers from 1st December."
David Lloyd's response
"Following the Government's 2.5 per cent VAT reduction, David Lloyd Leisure has introduced a 2.5 discount on all products which are sold by the Company in its clubs for the whole of 2009 - and has, for the foreseeable future, doubled this discount to five per cent. This discount applies to:
- Personal training sessions
- Swimming courses and classes
- Tennis courses and classes
- Weight management and other studio classes
- Children's camps and parties
- Food and beverages
- Spa products and therapies where they are provided directly by David Lloyd
"In addition, all members will also receive a free adult guest pass to the value of £15. Taken together, these steps allow our members to benefit from more than the 2.5 per cent Government VAT reduction.
"We've not applied the cut in VAT directly to membership fees, as such changes to our systems are complex in nature, particularly taking account of the variety of ways in which our members pay their fees. Such a step would, for example, require small refunds to those who've already paid annually or quarterly in advance, the price reduction would also need to be adjusted to reflect the element of our membership fees on which VAT is not in any event payable and there would be administratively complex changes to direct debits for those paying monthly.
"The VAT reduction is a short-term Government measure in response to the current economic challenges and we feel that the range of incentives and discounts that we've put on offer allows us to pass on the saving (and more) in a cost effective, streamlined and efficient way and we hope all our members will take full advantage of the savings on offer."
Orange's response
"From the moment the VAT cut was announced by the Chancellor, Orange committed to ensuring that our customers received the benefit of the reduction. We immediately began work to determine the best approach for passing on the cut to customers across the three areas of our business: pay-as-you-go mobile, pay-monthly mobile and home and mobile broadband.
"Turning to our broadband customers, due to complicated and unavoidable technical difficulties we were unable to pass on the VAT cut to customers immediately (in the months of December and January). However, to demonstrate our commitment to passing on the rate we informed customers immediately that we'd pass on the funds they would've saved - which amounted to approximately 50p per customer for the period - to our global charity partner, UNICEF. We did this, donating more than £576,248 to UNICEF in January 2009.
"On 1 February 2009, the earliest possible opportunity for Orange UK, we introduced the full VAT cut for our home broadband customers. If a customer is still unhappy about the approach they're welcome to call our customer service team to discuss.
"We're confident that the changes we 've made across all three areas of the business to reflect the VAT cut demonstrate a responsible approach and have been warmly received and had a positive impact on our customers.
"At no point are we actively trying to avoid passing on the benefit of the tax reduction to our customers. In the case of pay-as-you-go customers they now get more value, and while we were initially unable to pass on the reduction to our paying broadband customers for technical reasons (instead donating the equivalent value to our corporate charity UNICEF), we've now solved the issue to ensure they too benefit from the reduction."
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This comment was removed because the moderators found it broke the House Rules.
Maybe watchdog should look at the outrageous station car park charges. My local station charges £6.30 per day before the VAT reduction. When I queryed this their prices were going to be reviewed/lowered after Christmas when they could adjust all the machines. And guess what all the prices went up. The charge is now £6.50 per day
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When VAT was increased in the early 90s from 15 to 17.5% I remember all the videos and CDs in chain record stores all going up from 9.99 or 10.99 to 10.24 and 11.24 respectively. After a few weeks all the 99s came back again. The same will happen when VAT is increased at the end of the year. Fact is, to implement the VAT change must have cost a small fortune in man-hours for thousands of small businesses and many not so small businesses. It was a pathetic attempt at help anyway. I don't blame them for keeping the prices the same, after all they need all the extra money they can get with the banks not lending. Stop whinging.
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I worked at a jewellery shop [Company Name removed by Moderator] over christmas, and they introduced the VAT cut early, and then a few weeks before christmas they hiked the prices back up.
However, Primark has still kept the price reduction. And although tags have the higher price, they clearly advertise the lower price above the stock. Which I think is great!
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It is worth remembering that businesses can charge whatever they want and the government only recommended passing on the VAT cut!
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Well, at least some of these stores offered a discount on some goods for some of the time! Avon Cosmetics contacted all their reps to say that they weren't going to pass on any VAT reductions to their customers because they already offer good value for money!
I voted with my feet and am no longer an Avon rep.
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I bought an item from Debenhams immediately after the vat cut. I changed my mind about it and decided to take it back a couple of weeks later and asked for the refund to be put on a gift card as credit. To my surprise the credit was 2.5% more than I had paid. Of course I didn't say anything, but checked the price of the item on the way out, it was still for sale in store but at the old vat price of 17.5%!! I cannot believe that in the space of 2 weeks Debenhams were forced to put their prices back to the original, higher vat price. I am pleased that I made a 2.5% profit on my purchase!
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AOL are still yet to pass on my VAT cut i've now asked them why but i assumed they would do it automatically boy was i wrong!
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What a stupid, emotive report this was. I am a retailer - it cost us £3000 to implement the VAT cut in December, our subsquent profit nothing like covered the cost. Since December some cost prices have risen 30%, the pound has plunged 25-30% against the euro and the dollar (currencies we buy in) fuel costs have put carriage costs around 20% more than 2008 and yet we have not increased our prices to fully compensate. If you must run stories like this at least mention some of the mitigating circumstances that enforce some price rises. There was not a mention of currency fluctuations, the cost of imlementing the VAT change or the pending huge hike in business rates. I know you have got it in for retailers but please attempt SOME balance to your reports.
As for your resident money expert - he really should know better than to pander to the lowest common denominater. He should understand retailer problems and be able to explain rather than encourage this mob mentality that we are all out to rip people off. Come on, Watchdog, you are surely capable of better journalism. If not get some better journalists!!
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When the VAT reduction took place, I was pleased to see that charges for [company name removed] was lowered, and I paid less. Now they are back to what they used to be.
This means that those now benefiting from the 'payback' (which I believe was in order to help the public), are the businesses.
Surely the Government must have known that this would happen?
I thought it was to help increase public spending, but if we now have that VAT benefit lost, we are back to square one.
It is not only businesses that need halp in these difficult times, but it is the business world that has benefited in the end.
The rich get richer - and more avaricious - while the poor just keep on struggling.
A disgruntled pensioner
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As it appears to be quite simple for stores in particular to take 10 or 20 or whatever % of on one of the many discount days why should it be that difficult that when you get to the checkout they should surely be able to press a button and discount your goods by two and a half percent, or is this just to easy
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I work for a company who exports to the USA and therefore charge no VAT on any of their sales.
We pay most of our overheads by direct debit and reclaim the VAT each quarter. We are still paying the same net amount as before the reduction in VAT and therefore can only claim 15% and not 17 1/2% back. I have asked the companies concerned to reduce the net amounts but they refuse. In effect we are now paying more than before. How is this helping our small business?
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In addition to what crickedneck says. Consumers aren't some magical part of the population separated from the rest of the economy. People who work for many of these businesses are also consumers. If the businesses they work for can hold on to a little bit more cash then they might be able to keep people employed. And they're employee will be able to consume from other businesses. It's all circular you know, this report was atrociously short sighted.
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VAT reduction of 2.5% does very little to stimulate spending because you'd only see the reduction if you could afford to buy something expensive and that is only if the reduction is passed on. Bet your sweet life we'll be able to see the difference when it goes back up at the end of the year, and it won't be by 2.5% it will probably be 4 or 5% and we'll be told, you have had a VAT holiday now it's time to pay it back ....... WATCH THIS SPACE
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when i shopped at M & S
on my till reciept it showed -2.13% vat back.
as the cut was 2.5%
WHY ONLY 2.13%??
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The local paper shop [location removed] has not passed on any of the VAT cut to any of their customers in the housing estate where they operate.
No room for local loyalty at this shop, probably just a business decision I think, but this is a working class area where the 2.5% drop in prices would have made a difference.
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Because Motorhomer54 (no. 15) the VAT cut WAS 2.13% Do the maths. It's only the stupid media that decided it was 2.5%.
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People need to stop complaining!
The shops should deffinatly keep the VAT if they wish, its only a few pennies to the consumor, but adds up to thousands for struggeling companies.
People need to decide whether they'd rather save 5p or see their favourit shops shut down.
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Within two weeks of the VAT cut, in my local store I had a choice of price: £39.14 or £39.99.
The store's explanation - "the ones at £39.14 were in stock when the rate was cut, the ones at £39.99 have come into stock since".
2.5% VAT reduction = a price increase of 85p!
Perverse!
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If there are a number of stages of production within the UK, should not the end result be in slightly more that 2.5% to the customer, with each stage being reduced by 2.5%?
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Your programme accusing retailers of effectively defrauding the public with the VAT changes was ill informed, inaccurate and tantamount to libel and only serves to further alienate customers from struggling retailers. FACT: Suppliers costs to retailers HAVE gone up and CONTINUE to do so at an alarming rate and many retailers have not passed on these increases but absorbed them to their demise in some cases. Retailers are hard pressed to retain customers and margins are eroded to unsustainable levels because of sensationalised inaccurate reporting from Watchdog and many others. I suggest you get ALL the facts before you make libelous statements of the 'return to £0.99p' prices as, in reality these prices are far below where they should be 'in the real world'.
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Was quite disappointed with Watchdog for the subliminal messaging in this piece. When the voiceover was on and the images showed people from the waist down on shopping trips there were a number of close up shots of Morrisons bags. Morrisons was not implicated or even mentioned in the piece so why so many images...the implication that they are also not behaving as they should?
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I am a small craft supplies retailer and we as an industry have a standard mark-up to price goods. Many of my suppliers have increased their prices so that using the standard mark-up with the reduced VAT the goods still cost the same for the customer.
Also as a small retailer (with no staff now due to the credit crunch) stocking thousands of product lines and no fancy till to work out VAT reductions, it would take me until the VAT goes back up again to calculate each items new price and reprice them all.
I would also like to echo a comment of another retailer and say that many of the price increases have been absorbed by us over the past year.
Speaking for me, whilst calculating the new VAT rates I have put up the price of many items to reflect their increased cost to me. Previously I had chosen not to change the price and just put them out at the same price as the old stock.
It was a ridiculous idea with little or no thought for the small retailer.
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I have just received my March bill for [company name removed] and noticed that the VAT reductions applied in January and February have now gone. I did not receive any notification of price increases so why should this company be allowed to do this? It is only a small amount, but considering the customer base [it] commands, this will add to £1000's per month. It's time to scrap these ridiculous VAT reductions and give everyone the spending power they need by reducing income tax. The consumer will then have the option to put the extra money where they want rather than being dictated to by these huge corporations.
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