Online sales will continue to grow even as consumers spend less in response to Government austerity measures that come into force tomorrow.
That’s the prediction from shopping comparison website Kelkoo, which says ecommerce transactions will rise by 14% this year as shoppers turn the internet in search of bargains, despite new tax measures that look set to produce what it dubs an Austerity April.
Research carried out for the site by YouGov and published today found that 57% of Britons plan to cut back retail spending by an average of £1,045 a year following tax changes to be introduced tomorrow, the start of the new tax year. Overall, retailers are likely to be hit as consumers strip £90 a month from the spending on food and other retail goods. That equates to a cut of 16%, equivalent to £2.35bn. This comes at a time when total retail sales are expected to grow by just 1.4% this year, according to Kelkoo’s Online Trends 2011 report, carried out by the Centre for Retail Research in December 2010. The same report found ecommerce sales would grow ten times as quickly, by 14%.
In total, it says, the Government is expected to implement 45 major changes this month, all of which will impact people’s disposable income. More than half (58%) of those quizzed did not realise the full impact of changes that include an increase in the income tax free personal allowance from £6,475 to £7,475, a reduction in the threshold above which 40% income tax is paid from £43,875 to £42,475, and a rise in the national insurance insurance rate from 11% to 12%.
Chris Simpson, Kelkoo marketing director, said: “Austerity April is hitting consumers at a time when the cost of living has reached a record high, forcing people to take drastic measures to counteract the prospect of further reductions in disposable income.
“It is estimated that January’s VAT increase could cost UK households £520 a year and this month’s taxation and benefit changes will leave consumers a further £200 worse off. As a result of squeezed incomes, a recent report from the CBI shows that just 15% of retailers saw sales increase year-on-year in March, marginally higher than the 6% in February, which indicates that any changes that directly impact consumer spending power have a real knock on effect for retailers.”
He added: “Many people on lower salaries will actually reap the rewards of the tax and national insurance austerity measures, finding more money in April’s pay packet. Unfortunately, there is also a large group of people earning more than £42,475 a year who will find their next pay packet £68 lighter than it was in March. Whichever group consumers fall into, there’s no escaping the fact that life in the UK is getting increasingly expensive and a further squeeze on the purse strings will have repercussions on the retail sector.
“Retailers are already facing a difficult year with total retail sales expected to grow by just 1.4% in 2011. However, online retail sales are set to buck the trend with a predicted 14% growth as consumers’ appetite for online shopping is showing no sign of abating. In the current climate, it’s no surprise that shoppers are turning to the internet rather than the high street, especially as they can find savings of 15% or more off the recommended retail price.”
