Topshop and Topman will not pass the January VAT rise on to customers, Arcadia owner Sir Philip Green has confirmed.

In an interview he said: “2011 is not going to be easy. It could be challenging from a cost point of view, with the VAT rise, overseas labour costs, local taxes and a more nervous consumer.

“We just have to make sure we run very slick businesses. We have got to sell merchandise at great value, and continue to give our consumers fresh products.”

Arcadia does not split out results for individual fascias but revealed that the its Oxford Street Topshop flagship turns over around £150m a year. Topshop had its record year in the 12 months to the end of August 2010.

The VAT rate rose from 17.5% to 20% on January 4.

Green plans to offset the erosion to profit margins by increasing the young fashion chain’s presence overseas – a move which he said could double sales. Topshop and Topman have 479 franchise stores outside the UK, and 25 more are planned in markets including Australia, Canada, Russia, Indonesia, Thailand, Brazil and Japan.

He also plans an additional “four or five” stores in the US by the end of the year, in Chicago, Miami, Los Angeles, San Francisco and Manhattan.

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