VAT hike raises fears over January trading

Pub operators are bracing themselves for an extra tough New Year - with the VAT hike expected to force the price of a pint up by around 7p.

VAT will rise by 2.5 percentage points to 20 per cent on January 4 - and pubs are facing a dilemma as to when to increase their food and drink prices.

The credit crunch and threat of more bad weather could culminate in the harshest January ever for many in the trade.

Michael Kheng, owner of five bars in the Lincolnshire area, said putting up prices in January could be the wrong move.

"We could hold off until Easter, but then suppliers will be putting their prices up around February or March," he said. "But then if we put our prices up before Christmas it will look to our customers like we are trying to cash in. It's a real headache."

Marc Allinson, licensee at the Artful Dodger, in York, said he would not increase his prices until January. "We will have the suppliers' increase, so we will probably put our prices up by 10p."

"I wouldn't be surprised if this is one of the worst January's ever, especially if the weather keeps up."

Marston's has said the increase is likely to add 5p to the price of pint while the BII predicted it would be closer to 8p.

Brigid Simmonds, the British Beer & Pub Association's chief executive, said: "The rise in VAT is going to put further strain on the pub sector - and we have the beer tax escalator as well."

She also suggested the VAT rise would increase the disparity between the on-trade and off-trade.

"The 2.5 per cent rise will add about seven pence to the pub price of a pint of beer as opposed to only two to three pence in the off-trade," she said.

"The Treasury itself has recognised, in last week's alcohol taxation review, that pubs far are less able to absorb tax rises than the big supermarkets."

The Federation of Small Businesses (FSB) said small firms will be hit harder than big businesses, as they can absorb the costs. "Small firms will have to pass the full cost on to customers, reduce stock levels or find cost savings elsewhere - potentially costing jobs and undermining the government's private sector led recovery," the group said.