BUSINESS leaders and tax experts voiced fears about the future of Oxfordshire’s economy in the wake of this week’s VAT increase.

Some believe the tax hike from 17.5 per cent to 20 per cent will make little immediate difference to shoppers and retailers but are concerned about the longer-terms effects it will have on unemployment, interest rates and other factors such as rising costs of stock.

Ian Wenman, chairman of the Oxfordshire Institute of Directors, believes the bigger problem will be the impact on inflation and interest rates.

He said: “I think we will start to see slowly rising interest rates on the back of inflationary pressure.

“This will help savers, but businesses looking to borrow to expand or develop will suffer rising interest rate costs and it’s a very sensitive time for the recovery of the Oxfordshire economy.

“It may be a particular problem for people made redundant from the public sector looking to start a business. Uncertainty like this makes it more difficult to plan for what may happen in 2011.”

Retail consultant Keith Slater, council member for Oxfordshire Chamber of Commerce, said the rise would make little difference to money spent in the short term.

“People will budget and cut back. But it does make a difference to how much cash retailers have and we won’t see how well they are doing until February or March.”

Chris Mundy, of Oxford-based accountants and business advisers Grant Thornton, said the VAT rise wouldstrain family budgets. “It is seen as a tax on a discretionary spend but it is unavoidable in areas such as fuel and many household budgets will be forced to increase by up to 2.5 per cent.”

Margaret Coles, chairman of the Oxfordshire Federation of Small Businesses (FSB), said the VAT increase was a major headache for very small companies.

“Bigger businesses can flick a switch, but for very small firms it’s a major problem, because they have to re-price everything.” The FSB is pressing the Government to increase the threshold at which small firms start to pay VAT. Mrs Coles added: “I think the increase could stunt growth. Even though it’s only 2.5 per cent, it could affect confidence.”

John Partington, owner of the Chocology store in Oxford’s Covered Market, said traders would either have to increase their prices or absorb the price difference.

He added “This is just the latest in a long line of things to affect trade — bad weather, rent increases, loss of footfall because of the increasing car parking charges.

“For traders, it is especially worrying because we can’t pass those costs on to the customer.”