BUSINESS leaders and tax experts voiced fears about the future of Oxfordshire’s economy in the wake of tomorrow’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 it will have 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 the Oxfordshire Chamber of Commerce, said the rise would make little difference to the amount of money spent in the short term.

He added: “It varies greatly as a result of promotions, mark-downs and general consumer confidence and 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.

“A bigger problem for retailers is prices of goods coming from China have risen by 20 per cent. That could have a much bigger impact.”

Chris Mundy, tax partner at Oxford-based accountants and business advisers Grant Thornton, said the VAT rise will add to the strain on family budgets.

He said: “I think retailers will pass the cost on, not necessarily immediately but pretty quickly.

“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. Doing it on January 4 is not a good time.”

The FSB is pressing the Government to increase the threshold at which small firms start to pay VAT.

The organisation wants to see the VAT threshold increased to £90,000, from the current rate of £70,000.

Mrs Coles added: “I think the increase could stunt growth. Even though it’s only 2.5 per cent, it could affect confidence.”

Wieland Bruch, spokesman for the Cowley-built Mini, said: “People have been aware of the VAT rise for months and have made their purchase decisions already, although I am not aware of a peak in sales.

“The state of the economy as a whole may be a bigger issue.”

TRADERS' VIEW

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

He said: “I think people are generally quite worried.”

He said the it was just the latest in a line of factors causing a downturn in trade.

He said: “We are trapped in the middle, being squashed out. A lot of traders will take the hit so not to affect the customers.

“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.”

HOW THE INCREASE WILL AFFECT YOU

TOMORROW’S VAT rise has sparked fresh concern over family budgets. Chocology owner John Partington said: “People are already concerned about the tightening of their belts and this is only going to make that worse.”

Mr Partington said he had seen changes already in the way people were shopping. He said: “Times have changed. Items that are on offer now fly off the shelves. Before, people bought what they wanted and if it was on offer, that was just a bonus. Now people look out for offers and that’s what they will buy.”

Antony Johnson, manager of the Station Road Garage, in Shipton-under-Wychwood, said petrol prices would see a significant rise.

He said: “The price of fuel will undoubtedly have to go up, and it’s already been on the rise for a while now. We are on wafer thin margins, so we have no choice but to put the price up. It’s due to rise by three or four pence.”

Anthony Lloyd, from the Fallowfields Country House Hotel in Kingston Bagpuize, said: “Because of the difficulties of the last two years, we have held prices.

“Costs of course have gone up during that time, so our margins have been squeezed at both ends. We therefore must implement the VAT rise, rounding up to the nearest pound.”

But it wasn’t all doom and gloom for the county’s residents, as Oxford United said they would not be increasing their ticket prices.

Club secretary Mick Brown said: “We will not be passing the increase on to our fans by raising the price, so we will just take the hit ourselves. “There are definitely no plans to raise ticket prices in line with the VAT increase, not this season.”