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Retail spending to drop as tax changes bite


Changes to the tax system set to be introduced by the coalition government tomorrow could have a significant impact on consumer spending, according to new research by online shopping comparison site Kelkoo.

Although the income tax free personal allowance is increasing by £1,000, the threshold above which people pay 40 per cent income tax will drop and the national insurance rate will increase one per cent, potentially proving costly to the retail sector.

Kelkoo estimates that these changes and other austerity measures, including the restructuring of the benefits system, could see Britain’s total retail spend fall by £2.35 billion in April alone as consumers rein in their spending.

The website’s research indicates that 71 per cent of Britons will cut down on eating out, while 69, 53 and 42 per cent of people will spend less on clothes, electronics and big ticket items respectively.

Even essential items will be impacted, with more than half of those surveyed saying they will pay out less on food as a result of financial pressures.

Such a scenario could result in people seeking more for their money from their grocery shopping, and the most recent Kantar Worldpanel data showed that both Aldi and Lidl increased their individual grocery market shares in the 12 weeks to March 20th, perhaps suggesting that this shift to value retailers is already occurring.

Austerity measures will not just prompt people to reduce their spending though, with the Kelkoo study showing that 26 per cent of consumers will simply struggle to make ends meet and 3.3 million likely to rack up debts to stay afloat.

Chris Simpson, Marketing Director at Kelkoo, commented: “Austerity April is hitting consumers at a time when the cost of living has reached a record high, forcing people to take drastic measures to counteract the prospect of further reductions in disposable income.

“It is estimated that January’s VAT increase could cost UK households £520 a year and this month’s taxation and benefit changes will leave consumers a further £200 worse off.”

Published on Tuesday 05 April by Editorial Assistant

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