M&S chief raises spectre of VAT hike after next election

SIR Stuart Rose, executive chairman of high street bellwether Marks & Spencer, warned yesterday that VAT could be raised next year as the government battled with the country's shattered public finances.

VAT is due to be restored to 17.5 per cent in January, after the Chancellor, Alistair Darling, cut it to 15 per cent last year in an effort to revive high street spending. Rose said yesterday that whoever won next year's general election might be tempted to push VAT even higher, but warned that it would jeopardise returning but fragile consumer confidence.

"We are skint as a country and the Treasury needs money," said Rose, as Britain's biggest clothing retailer unveiled better-than- expected sales figures.

Rose said he "would not rule out" a new government of whatever stripe going further and pushing up VAT to a new level.

"I'm resigned to it," he said. "This government and any future government has got to make hard judgments about the economy."

The British Retail Consortium also spoke of its concerns yesterday about a potential further VAT rise after the next election.

A BRC spokesman said: "Whichever party wins the next election will have to look at ways of shoring up public finances. VAT is one of the taxes they will look at.

"But anything that undermines any recovery when it comes would not be welcomed."

Rose said he felt Britain was through the worst of the recession, but consumer confidence remained "fragile".

He said he believed the high street would see "a steady, slow improvement in 2010", rather than a strong rebound, and that higher tax and rising unemployment remained potential negatives.

However, Rose said there were no plans to repeat last year's pre-Christmas "20 per cent off" discount days this festive season. The group has announced that it will introduce 400 branded products into its stores.

Interim pre-tax profits for the half-year came in at £306.7 million, against £307.8m last time. A cut in the dividend from 8.3p to 5.5p was flagged at the last full-year results.

M&S's total sales in the six months to 26 September rose 2.8 per cent to £4.3bn, with UK sales up 1.8 per cent and international sales up 12.2 per cent.

Stripping out new floorspace, like-for-like sales were down 0.9 per cent in the UK. General merchandise, which includes clothing, was down 1.4 per cent, while food was down 0.3 per cent.

Rose said: "We have had a good start to the third quarter. However, the market remains competitive and, as we come up against volatile trading conditions last year, we remain cautious about the outlook for Christmas and the year ahead."

He added that tight control of costs and stocks offset price cuts and weak demand.

M&S, Britain's biggest clothing company, said that it had increased its clothing market share by value by ten basis points to 10.1 per cent.

The City liked the results, which were ahead of expectations, and shares in M&S were marked up 20.5p, or 6 per cent, to 361.5p. M&S also revealed that it was on track to distribute a £60m bonus to staff at the financial year end if there was a similar performance in the second half to the first half.