U.K market leading entertainment retailer HMV has pledged to pass on the new 15% rate of VAT sales tax, which the British government announced in its pre-budget report.
The VAT (Value Added Tax) rate will be cut from 17.5% to 15% from Dec. 1 for a 13-month period in a bid to boost consumer spending in the ailing U.K. economy. Retailers could choose to pass the cut on to encourage spending, as urged by chancellor Alistair Darling, or use it to improve margins.
HMV said the cut would be passed on to customers, although the labelling of products would not be altered. An £11.99 ($18.44) CD at HMV will now cost £11.74 ($18.06).
“We are pleased to confirm that the reduction in VAT to 15% will be passed on to customers at the point of purchase, and this will be communicated throughout the store and in our advertising,” said HMV in a statement.
“Although we are passing on the VAT reduction at the point of sale, the re-stickering of our entire stock would represent an enormous undertaking for our sales staff at this very busy time of year, so the prices shown on our product packaging will for the time being remain unchanged.”
London-based Theatre production company the Really Useful Group will also cut ticket prices from Dec. 1. Tickets to the group’s West End productions of “The Sound Of Music” and “Joseph And The Amazing Technicolor Dreamcoat” will be reduced accordingly, and then cut further to the nearest 50 pence (76 cents).
For instance, a £55 ($84.91) ticket will cost £53.82 ($83.12) after the VAT reduction, but will be priced at £53.50 ($82.59).
“It is important that customers feel the benefits of the cut in VAT immediately,” said a Really Useful Group statement. “We hope other West End producers will follow suit and pass on the reduction in VAT to theatre-goers straight away.”
A survey by U.K. collecting society PRS suggests the biz will not benefit greatly from the sales tax cut. The online survey of 1,026 U.K. adults shortly after the announcement found that 85% of people said they would not buy more recorded music CDs as a result of the cut, while 15% said they would buy more.
The survey also found that 88% of people said they would not purchase more high-end media players, where the price cuts would be more apparent, while 12% would do so.
For digital music, which would benefit the least because of the low prices involved, 94% of those asked said they would not buy more downloads, with just 6% willing to buy more.
However, some major download stores are not based in Europe so are not subject to the U.K. VAT cut. Apple’s European iTunes store is operated from Luxembourg, where it can take advantage of a standard VAT rate of 15%.
“We’ll be reviewing our prices but the impact on downloads is pretty minimal,” Ben Drury, CEO of London-based download service 7digital, told Billboard.biz. “We’re already doing very competitive pricing anyway.”
VAT is attached to most goods and services in the U.K. The cut was announced in the pre-budget report on Nov. 24.