Retailers are planning to use next year’s VAT rise as an opportunity to mask more extensive price increases according to accounting group KPMG.

KPMG said nearly 60% of retailers are intending to raise prices over and above the 2.5% VAT increase. Across all industries, 40% of businesses intend to do likewise.

The accountant said retailer reaction to the VAT hike was “understandable” as they were using the opportunity to counteract sizable discounts offered during the economic downturn. KPMG did warn the move could be damaging for sales.

KPMG performance & technology partner Martin Scott said: “In today’s price-sensitive market, any increases may well have a damaging effect on sales volumes. Firms need to understand the overall impact on profitability.

“However, downturn discounting has re-set the price baseline for consumers, who are now unwilling to pay more for goods and services. Companies need to be wary of first mover disadvantage”.

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