Boost for Osborne as online businesses prepare to absorb cost of controversial VAT rise
Online businesses are planning to absorb all or some of January’s planned VAT rise to 20 per cent, according to a new survey that will come as a boost to Chancellor George Osborne.
Amid fears that the Government’s battery of spending cuts will weaken the recovery, the finding from a survey of 600 firms by eBay, the UK’s top e-commerce site, will take some of the pressure off the Chancellor.
The survey found that 63 per cent of internet traders will not pass on the full cost of the VAT increase to customers. Some 24 per cent plan to absorb the full cost of the tax rise and 39 per cent will absorb some of it. Only 23 per cent will pass on the full cost.
The readiness of the industry to soak up at least part of the VAT increase does not mean that traders back the Chancellor’s decision to press ahead with it.
Some 63 per cent of them thought that the VAT rise would harm the economy by reducing demand and 50 per cent thought it would harm their business and reduce sales. More than half thought it should be scrapped. Nevertheless, online firms have opted to take the pain themselves, rather than pass it on to the consumer.
eBay’s Online Business Index, one of the biggest surveys of its kind among internet businesses, also found surprisingly strong levels of confidence in the industry.
Some 64 per cent of respondents were quite or very confident about the outlook for their business over the next 6 months. Only 10 per cent were very or quite pessimistic.
Some 67 per cent expected their sales to increase over the next 6 months and only 8 per cent expected a fall.
Nor were firms planning big price rises. Some 62 per cent of respondents expected their prices to stay the same (54 per cent) or fall (8 per cent).
However, traders were less bullish about profit margins with 28 per cent expecting a fall, 17 per cent a rise and 55 per cent no change.
The encouraging picture emerging from the industry is not mirrored by traders’ views of how their customers are feeling.
Asked how confident they thought consumers were about the prospects for the UK economy over the next 6 months, only 19 per cent of firms said they were quite or very confident, as opposed to 37 per cent who felt consumers were quite or very pessimistic.
Commenting on the results, Jody Ford, Director of SME Businesses for eBay UK, said:
“The fact that online business confidence remains strong is an encouraging sign that internet businesses have set their sights on long-term growth.
“Despite a tough trading environment, online firms have performed well during the recession, and these results indicate that they are not prepared to let a VAT rise jeopardise that.
“However, the risk of absorbing the VAT rise will undoubtedly come at a cost to small firms, either by way of reduced investment plans including hiring staff, or abandoning expansion plans.
“It is widely accepted that the private sector has to drive the growth needed to deliver an economic recovery, but this will only be possible if the Government provides the right conditions and incentives for small businesses to flourish.”
1. Methodology for Online Business Index
· The Online Business Index is eBay’s regular barometer tracking the performance of companies trading on the internet, mapping the attitudes of hundreds of online firms operating on eBay.
· It is based on a major survey of 605 online retailers.
· The survey was conducted by independent research consultancy FreshMinds, using seller information provided by eBay. Survey fieldwork was carried out online between 1th and 22nd September 2010
· Previous surveys were conducted in January, April and September 2009 and January 2010
· On average, the businesses covered obtained 61% of their income from eBay, and 39% from other websites, including 7% from Amazon.
· All survey respondents are registered as businesses on the eBay site and have an annual turnover of at least £68,000 on eBay alone, excluding other sources of income. The largest group of respondents (33%) were small businesses with a turnover between £100,000 and £199,000. A quarter of the respondents have a turnover of over £500,000.
All figures in this report have been rounded to the nearest percentage point. As a result, figures may not always add up to 100%.