Magazine article Marketing

Marketers Hit by VAT Rise as Major Drops Poll Tax

Magazine article Marketing

Marketers Hit by VAT Rise as Major Drops Poll Tax

Article excerpt

Marketers hit by VAT rise as Major drops poll tax

Marketers were hurting this week as the Chancellor Norman Lamont raised Value Added Tax (VAT) by 2.5% in his effort to assuage public hostility to the poll tax. The extra tax on sales comes as many companies struggle to keep prices down and as the recession continues to hit demand.

The Chancellor described his Budget as broadly neutral, but it has been attacked by opposition leaders for its VAT increase, which will disproportionately increase taxes on the poor, and for failing to introduce significant measures to boost investment in new technology or skills.

The difficulties of car firms are compounded as company cars attract employer's National Insurance contributions, and tobacco firms face uncertain sales as higher than inflation tax increases are imposed on cigarettes and cigars.

Changes in alcohol excise duties mean that for the drinks industry at least it is broadly neutral Budget, although spirits firms are reeling from a higher-than expected 56p a bottle rise.

A technical change in assessing the alcohol content of beers could also mean a drop in the price - and a boost to sales - of low alcohol beers, and slower growth for strong and premium lagers.

Marketers of high value consumer goods from cameras to cars will be particularly badly hit by the VAT increase. "We have a lot of thinking to do," comments David Pearson, MD of Sony UK.

General business reaction is that the Chancellor has not done enough to lift recessionary gloom, even though interest rates may soon ease. "He hasn't announced anything that will make any difference", says Ken Miles of the Incorporated Society of British Advertisers.

Retail

"This is a Budget unlikely to alleviate the current gloom in spending," says Richard Schrager, finance director of the Dixons group. "It was in fact mildly deflationary - especially if you happen to be a smoker, drinker, or a car driver. …

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