Retailers received no last-minute reprieve over the planned VAT hike in Alistair Darling’s pre-Budget report.

The Chancellor (pictured) had previously stated that VAT would revert from its 15% rate to 17.5% on 1 January, potentially causing chaos for retailers at a key trading period. The change was confirmed in his statement today.

Earlier there was speculation Darling could announce an increase in the basic rate to 20% from 2010 or 2011, and that VAT could be introduced on products deemed to be essential purchases, such as bread and milk. But neither measure will now take place before next year's general election.

Tesco has already indicated that it may not pass on the VAT rise to shoppers next year.

“Given the amount of promotional activity and price competition out there, I don’t think there will be a material change in pricing in January, certainly not enough to upset consumer confidence,” finance chief Laurie McIlwee said as the supermarket yesterday announced a 2.8% rise in third-quarter sales.

“Just when consumers are starting to get a bit more confident, to start to indirectly tax them would not be a good thing.”

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