A Darling idea

December 16, 2008

Sometimes in life, we are forced to question the wisdom of those we have burdened with the responsibilities of our nation and to ask ourselves if they really are in touch with the people they are elected to serve. That may be when rash decisions about the law or immigration are made. It may be when horrifying miscarriages of justice are discovered or nightmare abuses come to light that were continually ignored by those paid to prevent them as has happened all too recently but one thing has made me sit back and seriously consider whether some of the ivory towers we have built for our representatives need lowering to street level.

The Chancellor of the Exchequer, Alistair Darling M.P.  has tried to breathe life into the retail economy by reducing the rate at which V.A.T.  is charged. Now, when many retailers are reducing by as much as 70% in an attempt to avoid bankruptcy, a huge drop in taxation may well spark a return to the manic pre Christmas rushes we are more familiar with but a reduction of just 2.2% is next to insulting.

As an example of the benefit the customer will see from this token gesture, we can look at a typical furniture purchase.

If customer A buys a side table at normal price and pays £129 for it, they stand to save just under £3 from V.A.T. reduction.

If customer A waits until the winter sales begins, they could buy the same table pre tax reduction for £125 or with the V.A.T.  adjustment, £122.

Now, bearing in mind that customers are familiar with prices ending in a 9 or 99, most retailers round prices up or down to a 9. In psychometric terms, it is a ‘pretty’ number. It looks good to the buyer.

Therefore, if the retailer follows the normal pricing custom, the side table is always going to be £129. Some retailers use 5 as a rounded number too, so the cheapest this item is ever going to be is only £4 less than normal price, regardless of V.A.T.

If a larger purchase is made, for example a car at £17999, then an adjusted price would save £383.

If they negotiate a reasonable discount with the dealer of 10%, they would save £1800, a figure not unusual in these financial times. V.A.T. adjusting would bring that to £15854, a further saving of just £345. A fair figure but not enough to compare with free delivery or upgraded wheels or trim.

In short, in comparison with the discounts being offered by many desperate traders, 2.2% makes little if any difference. The costs of implementing the change in pricing structures and labelling goods will however prove the final nail in the coffin of a lot of small companies. 

Mr. Darling has consequently not only failed to save the economy but also, in his bungled attempts, helped to finish off many of the small businesses that were suffering before.

At least hose small business owners who have a mortgage can feel some benefit: The other change was to allow a longer period for mortgage arrears to be settled before repossession takes place.

As a guide, here is how the V.A.T. change is calculated:

Original price divided by 1.175 to remove tax at 17.5%

Add new tax by adding 15%

Alternatively, subtract 2.127% from old price to give same result.

Before I finish one by line. If a retailer wants to have a period of genuine sales, they must first establish the ‘normal’ or ‘usual’ price. This price establishment period must be a minimum of 28 trading days. If a store opens seven days a week, that’s just four weeks, but if they trade on six days and close on the Sunday, then it is 28 trading days not including Sundays.

If they change prices on display within that period then they must again wait 28 days longer from the date of change. Therefore, if your local shop has changed its labels on Monday the 1st of December, they cannot have a sale before the 29th if they open seven days per week.

Let’s wait and see how many retailers will still be holding Boxing Day Events this season.

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