Stores raise prices before VAT change

Some high street stores have raised prices ahead of January's VAT hike while pledging not to pass the tax increase on to customers immediately, it was reported today.

Retailers including Tesco and Boots have increased the prices of certain items in recent weeks, according to the Daily Mail.

The moves come as consumers face a raft of different approaches to the hike in VAT, which returns to 17.5 per cent tomorrow.

A number of high street chains are delaying price increases, while others are imposing them only on certain items and some retailers have not stated what they plan to do.

Tesco has pledged to freeze VAT on many non-food items, adding up to a projected £12 million in savings for customers.

It is understood that the supermarket increased the price of 1,577 items - around 6.3 per cent of its range - this month.

The increases are thought to include 500 products that are subject to VAT, including bedding, cooking equipment and crockery.

Tesco told the Daily Mail that the price changes had "no link whatsoever" to the increase in VAT.

It is thought that Boots has increased the price of more than 1,500 product lines by an average of 2 per cent in recent weeks.

The retailer said it would "gradually increase" the prices it charged during the early part of the year to reflect the higher tax.

A spokeswoman for Boots UK said: "We believe our customers want great value at this time of the year and we are offering a fantastic January sale with discounts of up to 50 per cent off a wide selection of products."

VAT was cut to 15 per cent in December last year as the Government tried to drive up consumer spending in the face of the economic downturn.

The centre for economics and business research estimates that the VAT cut helped boost spending by £6.8 billion, but it has warned that retailers could face a tough spring because of the increased tax and rising inflation.

Sir Philip Green has said all of his Arcadia Group stores - including Top Shop, Dorothy Perkins and Miss Selfridge - will absorb the cost of the VAT increase.

Argos plans to delay any price increases until the end of January, when its new catalogue is published, minimising the costs associated with the change.

But its fellow Home Retail Group firm Homebase has said it will be raising VAT on all its goods from the beginning of January, although it said that because the tax was only one element of pricing, the increase was not likely to be immediately evident.

Marks & Spencer is also planning to raise prices in line with the tax hike as soon as it becomes effective on all general merchandise. Food items that attract VAT will increase in price from January 11.

In a statement, Tesco said: "We work hard to keep prices down for customers, which is why we have frozen VAT on thousands of products at the lower rate of 15 per cent. This is on top of 5,000 price cuts over the last two weeks, with average reductions of over 10 per cent.

"A small proportion of products will have increased in price but this is either because of special offers coming to an end or an increase in the cost price. Many more prices have fallen than increased and overall consumers continue to get a great deal."