The chief executive of UK retail giant Tesco has warned that the rise in business VAT to 20% from January 2011 will hit consumer spending.
Speaking at a retail conference in Brussels this week, Sir Terry Leahy said it is good that the next rise has been delayed.
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“It will have an effect on consumption. I am optimistic because I think we are in recovery and so there is an underlying improvement in consumer psychology,” Leahy told reporters.
His comments coincided with a survey by shopping comparison website Kelkoo this week, which suggested that the rise could cost each household GBP500 (US$744) a year, while raising GBP13bn for the treasury.
The survey of 2,000 shoppers revealed that annual spend on retail goods would fall by GBP324 per person to GBP1,464.
“”Pain was to be expected following the coalition’s first budget of austerity, but the news of a hike in VAT has left a bitter taste among the British public, with over half of those surveyed condemning the rise,” Bruce Fair, managing director of Kelkoo UK said.
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By GlobalDataHe added: “While people understand the new Government’s urgent predicament over reducing the national deficit, increasing VAT will increase government revenues significantly on the one hand, but it could also have serious repercussions for consumers, retailers and the economy on the other. Consumers would be left facing an increase in the price of everyday goods at a time when salaries are generally being frozen and the overall tax burden is increasing.”
