The battle for Christmas shoppers is hotting up as the deadline for VAT to return to 17.5 per cent approaches.

The amount that shoppers spend at Christmas is set to fall by £535 million this year, the first drop in two decades, according to Verdict, the retail market research company.

In addition to falling sales volumes, as Britons keep tighter control of their spending because of the recession, Verdict suggests that the lower VAT rate of 15 per cent will have two — contrasting — effects. The lower rate will keep prices on items down, reducing the amount of money spent for the festive season; but the looming rise in VAT in the new year could help to boost sales, as shoppers buy big-ticket items before the increase kicks in.

In Germany, where there was a similar situation in 2006, sales rose by 1.9 per cent in the month before the increase.

Retailers also are working harder for shoppers’ custom. Yesterday Debenhams became the first leading retailer this winter to announce a pre-Christmas sale. The department store chain will cut prices for four days from tomorrow, with reductions totalling £250 million.

After VAT goes back up to 17.5 per cent, John Lewis will keep prices at their previous level for a month.

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