VAT hike leads to 3.7% sales fall

The VAT increase is being blamed for a 3.7% decline in retail sales in January which will result in job losses, economists and retail groups predict.

The Government’s VAT hike of two percentage points to 23% which came into effect at the beginning of January is being blamed for a fall in retail sales. Retail groups said not even the traditional January sales could encourage consumers to spend their money. The Ibec group, Retail Ireland, said consumers had spent money earlier in the year in November and December and then shunned the sales in January.

Chief economist with Bloxhams, Alan McQuaid said: “The bottom line is that consumers remain under immense pressure, with stealth taxes announced in the December budget further set to eat into disposable income. Lower interest rates will ease the pain to some degree but not enough to put spending back in the black.

“Overall, we think personal spending on goods and services will fall for the fifth year running in 2012, putting more retailers out of business as a result.”

The sectors most severely hit by the decline in sales were department stores, the motor trade and electrical goods. The most recent CSO figures show that sales in department stores fell by 18.4% in January.

The biggest change, month-on-month, was in the motor trade. Motor trades declined from an increase of 26.2% in December to a fall of 21.3% in January.

The sales of electrical goods also fell sharply after strong growth in December.

Retail Excellence Ireland chief executive David Fitzsimons said retail sales in Ireland have been in decline since the end of the boom.

“Irish retail sales have been consistently declining since 2008,” he said.

“While December bucked this trend, January’s figures show that another very challenging year, with business closure and additional redundancies, is unavoidable.”

Retail groups called on the Government to protect 260,000 jobs within the Irish retail sector.

ISME’s chief executive Mark Fielding, criticised the Government’s action plan for jobs for having very little support for the retail sector. He said: “The retail trade employs 262,000, or almost 15% of all jobs in the economy and accounts for over 10% of GDP.

“Despite this importance, the Government’s Action Plan for Jobs ‘skated’ over the sector with barely a mention and the ‘actions’ that were announced were so ‘milk and watery’ that they will have little or no effect on the sector.

“Where is the action on upward only rents, where is the action on rates, where is the retail strategy group?”