UK VAT Rate Increase May Hit Demand For HDTVs

UK Chancellor George Osborne has announced a rise in VAT (value-added tax) rate from the current 17.5% to 20% in an emergency Budget unveiled in the House of Commons today. While deemed necessary to tackle the nation’s ever-swelling borrowing deficit (which rivals that of Greece), this VAT increase is expected to hit retail spending hard. Big-ticket, non-essential items such as flat-screen HDTVs are particularly vulnerable, as the amount of VAT slapped on to the final price depends on the base value of the product.

Translating this 2.5 percentage point rise into graspable figures, a Samsung LE40C650 100Hz LCD television (which can be bought for around £650 if you shop around) will increase by £13.83 in price to cost £663.83. A Panasonic TX-P50VT20B — our current 3D TV benchmark — which at the moment retails for £2295 will undergo a larger price hike of nearly £50 to sell at £2343.83.

Optimists may think that overall demand for HDTVs would not diminish since consumers could simply settle for a smaller TV or a cheaper brand, but unfortunately things are no so clear-cut. Because the VAT increase also makes essential household items such as toothpaste and cleaning products more expensive, the cumulative effect is a net reduction in disposable income which will undoubtedly dampen the demand for luxury items like big-screen HD televisions.

Electronics retailers and manufacturers would probably have to work harder to persuade consumers to part with their money in times of austerity, either by offering deep discounts or operating scrappage/ trade-in schemes (e.g. Sony cutting up to £150 off the price of a new Sony BRAVIA HDTV when you trade in an old TV).

The good news is, the VAT increase does not come into effect until 4 January 2011, which gives retailers at least 6 months to change their inventory systems, printed catalogues and in-store prices. More importantly, shoppers have some time to bring forward their purchases of HDTVs and other electronics items to avoid being hit by the inevitable price hike. With the VAT rate rise strategically scheduled for after the new year, this year’s pre- and post-Christmas rush looks set to be busier than ever.