It was a bit of a nerve racking wait for results. Prior to the VAT cut, John Lewis had reported that their sales had been 13% down on the same period last year. It looked like there would be a proper bloodbath on the high street. However, immediately post VAT cut, their sales were only down 6.7% on the previous year, and they finally reported that in the five weeks to Jan 3rd, their sales were up 2.9% on the year before.
Other retailers posted a similar story - New Look had like for like sales increasing 2.8% in the 14 weeks to January, Debenhams had posted a 3.5% drop in sales, but said their profit had risen thanks to tight stock control, Ocado, the online grocer had it's sales up 25% compared to last year, Co-Op Group had like for like sales up 5.2% over fourth quarter, and even home furnishings firm Dunhelm managed to maintain margins and was down only 5.6% in sales, despite the housing market being stagnant.
Twas the VAT cut that did it - Alistair Darling saved Christmas for the retailers. It brought people out to shop and it reassured the customer that government would do whatever it took to keep the economy going and therefore brought confidence back into the system. So many armchair analysts tended to assume that people wouldn't turn out for a 2.5% VAT cut when there was a 50% sale on. But the actual shopper (as opposed to those who opine but avoid shopping) understands first-hand that the 50% sales were very much selective. Some things were on sale, but never the stuff you really wanted to buy - no change there from previous years! Shoppers are used to these sales and sceptical about them, even assuming that some retailers deliberately put some prices up, in order to then cut more spectacularly and justify the sales posters. But the VAT cut was very real, it was real money off, and people appreciated it.
The good Christmas also has tax implications - the Treasury might be down on tax revenue from the Banks, but at least VAT should hold up, and retail corporate profits shouldn't be too badly down. It would have been a rout though had the government not acted.
I know the naysayers are going to rush to point to Waterford Wedgewood and Woolworths - but Waterford Wedgewood made six years consecutive losses (i.e. they were doing badly in the boom), and Woolworths were similarly badly placed - nothing could have saved them, apart from someone changing their business models, and that is not usually the job of government. Some businesses go bust even in boom time (Rover anyone?), it is a normal part of the commercial environment.
US Christmas sales figures come out on 7th Jan, and it will be interesting to see how they have fared, as they did not make any attempt to stimulate sales.
Finally, I must comment on Germany. After lashing out, and complaining about Britain "tossing around billions" in an act of "crass Keynesianism ", they have now U-turned. They are going for a €50bn package (much bigger than ours as a % of GDP), which they are borrowing to fund and they include some tax cuts. The Germans have gone for raising income tax personal allowances. Not sure how that will help them though. The American experience with income tax cuts showed people hoarding the money, and the Germans are even more inclined to hoard than the Americans. But I suppose a VAT cut was ruled out after all the fuss they made earlier...
Update: 7th Jan. Car registration figures came out today. They were bad, new car registrations fell 21.2%, but everyone had expected a drop of 35%. According to the FT,
"The Society of Motor Manufacturers and Traders said the cut in value added tax from 17.5 per cent to 15 per cent on December 1 may have been a contributory factor in the smaller than expected dip in sales.
Until December, the slide in car sales had accelerating, from a fall of 18.6 per cent in August to a 36.8 per cent drop in November.
....The better-than-expected UK figures contrasted with much bigger falls elsewhere in the final month of 2008. Earlier this week, all the leading US carmakers reported declines of more than 30 per cent in December, while sales in Japan dropped 22 per cent to the lowest December level on record.
In Europe, registrations fell by almost half in Spain, by 24 per cent in France and 13.2 per cent in Italy"
So VAT cut to the rescue again. Of course some of the benefit will go to those ungrateful Germans, but hopefully the Nissan and Mini plants here were supported too.