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VAT cut not likely to have channel impact

Simon Quicke

The impact of the VAT cut on the channel is not likely to be anything major with expectations in the industry that the small drop in prices will make little difference.

One of the main planks of the pre-budget report was the planned drop from Monday in VAT from 17.5% to 15% in an attempt to spur sales in the high-street.

But some in the channel have expressed doubts that the VAT cut will have an impact on the prices passed onto customers.

"The market is driven by price points and I fail to see how a £99 price point moving to £96.50 will stimulate sales in our sector. All the VAT cut will do is give everyone involved in the channel a short-term headache as they struggle to implement it across their IT and accounts systems," said Phil Jones, sales and marketing director at Brother UK.

"We can't assume that the VAT cut will be passed on because margins are under pressure from other factors such as the devaluation of sterling, which is ramping up import cost prices," he added.

"So I wouldn't be surprised if distributors and resellers opt for a simpler approach and maintain price points during the temporary VAT cut and pocket the 2.5% to give them a little bit extra headroom," Jones said.

The problems in the retail sector mean that the VAT cut is unlikely to be passed on said Clive Longbottom, service director for business processes facilitation at Quocirca, said that the high-street was already discounting heavily.

"If you are buying a laptop then a 2.5% decrease doesn't make a great deal of difference if it is passed on, which it is not likely to be," he said.

He added that for most players in the market the cut would just create headaches as prices had to be changed across the board.

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