The rise in VAT to 20% next year will disadvantage small stores which cannot afford to absorb the increase as their larger rivals would, say retailers' representatives, but other aspects of the Budget offer support to local stores.
John Walker of the Federation of Small Businesses said: "The increase will hurt small firms who will have to pass the increase on to their customers, unlike big business which can absorb the cost."
Association of Convenience Stores chief executive James Lowman said: the much anticipated rise in VAT may be "the least bad option for increasing tax revenue" but it still presented a risk to local shops. He praised the Chancellor's decision not extended VAT into areas like food and newspapers, which would have dramatically increased the cost of goods in convenience stores.
British Retail Consortium director general Stephen Robertson warned that the rise, due to take effect on January 4 2011, would place operational costs on retailers. “Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise," he said. "The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less. Six months to prepare is better than the rise coming-in this summer." He called for a "light touch to enforcement" at the time of introduction.
Lowman added that the Chancellor had heeded the lesson of previous VAT changes. "We warned him not to implement the increase in VAT immediately as this would not allow retailers enough time to change prices on thousands of products," he said. "The delay also allows retailers time to sell through products with price marks and avoids the previous error of introducing the change on the January 1.”
The Chancellor also announced reductions in taxes and national insurance contributions for small businesses. Cuts have been announced in the rate of corporation tax of 1% per year from 2011 to 2014; a reduction in the Small Business rate to 20% from April 2011 and a reduction in National Insurance Contributions for businesses outside of London and the South East of up to £5,000.
James Lowman said: “Local shops welcome the decision to reduce corporation and small business taxation, and the increase in the thresholds for employer national insurance contributions. These tax reductions will leave retailers better equipped to deal with the challenge of economic recovery, and will stimulate new employment in the sector.
Apart from reversing the previous government's increases in cider duty, Osborne made no changes to alcohol, tobacco or fuel duty. Wine and Spirit Trade Association chief executive Jeremy Beadles welcomed the decision as it "provides some relief for a sector that has faced substantial tax increases in recent years - repeated tax hikes have produced less revenue for the Treasury and punished responsible drinkers, while failing to tackle the problem of binge-drinking."
James Bielby of the Federation of Wholesale Distributors also applauded the move. “These duties are already significant costs for businesses and consumers and it was right not to add to them," he said. "A further hike in alcohol duty would also have impacted on alcohol fraud since the higher the rate of excise duty, the more incentive there is for fraudsters. This fraud is already costing the Exchequer an estimated £1billion in lost revenue each year.”
ACS has also argued that the Government could save massive revenue losses by cracking down on illict traders of cigarettes and alcohol. “We are glad to assist the Coalition Government in reviewing alcohol pricing and taxation issues," Lowman said. "We will be stressing the need to take a detailed look at the relationship between high duty and the multi-billion pound illegal trade. This trade represents a £5 billion black hole in the Budget and this Government should take a fresh approach to closing it.”