UK households are facing a £6.2bn bombshell when VAT rises to 20 per cent in January, according to a report by Acxiom, which urges brand owners to overhaul their marketing to deal with a rise in over-stretched consumers.
The Affordability VAT Report exposes the fact that the finances of seemingly comfortable consumer groups could be tipped over the edge by the 2.5 per cent sales tax hike.
The report also shows marketers in specific industries, such as the financial, telecoms and utilities sectors, how to identify which households will be the most stretched and more at risk of defaulting on payments or cancelling contracts.
While low income groups will continue to struggle and higher earners should be cushioned from the increase, the report digs deeper to a household level and concludes that ‘comfortable’ consumers could have their spending power impacted by the rise.
The worst affected groups include: married pensioners; married couples living with grown-up children; and childless couples aged 25 to 34.
Total UK household expenditure will increase by £6.2bn, and consumers will also suffer a collective drop in discretionary income – the amount of money people have left to spend after legal outgoings such as mortgage and Council Tax have been paid – of £2.3bn. The average UK household will be £225 a year out of pocket, with this figure rising to £448 for some groups.
The hardest-hit areas of the UK have been identified as Hull, Gwent, Stoke-on-Trent, Leicester and Middlesbrough, which will all bear the brunt of price rises. The report also goes into greater depth about how specific regions will be affected: Wales and the East Midlands will suffer most.
Acxiom Europe chief executive Stephen Whyte said: “The VAT rise of 2.5 per cent may seem insignificant, but is going to have a major impact on many UK households’ finances.
“For marketers, Affordability gives a unique insight in that it shows the effect of the increase not just at a national or regional level but at household level. This throws up some interesting detail of who is really going to be impacted by the VAT increase. Our Affordability analysis is helping brands plan campaigns to ensure budgets are not wasted on targeting the wrong consumers.”
