, Britain
A clothes shop in Harrogate buys its autumn range in the spring. Coats, knitwear, the season's weight of everything, ordered months ahead against a guess at what it will sell for and what will be left in January.
On Tuesday 12 June 1979 the Budget replaced the 8% and 12.5% rates of VAT with a single rate of 15%, effective from Monday 18 June.
That gave six days. Not six days to think about it: six days to decide what every price in the shop was going to be, write the tickets, redo the window, tell the staff, and charge the new rate on the Monday whether or not the decision had been made.
A tax change on a retail price is a shop window change
Sell to a VAT registered business and a rate change is largely mechanical. You charge more, they reclaim more, and the number that matters to both of you, the price excluding tax, has not moved. It is paperwork.
Sell to the public and there is nothing to reclaim. The price the customer sees is the price including tax, because that is how a price has to be shown to a consumer. So when the rate moves, either the ticket moves or your margin does. There is no third place for it to go, and the ticket is the first thing anybody looks at.
That is why a tax change lands harder on a shop than its size suggests. Nobody walking past the window is thinking about the standard rate. They are reading a number on a coat and comparing it with the number they remember.
The arithmetic is smaller than it sounds, and worse than it looks
Eight to fifteen sounds like the price should go up by seven per cent, or by nearly double. Neither is right, and getting it wrong in either direction cost shops money that week.
Take a coat priced at £27 including VAT at 8%. The shop's actual price, the bit it keeps and buys stock out of, is £25. To stand still after 18 June, the ticket has to carry £25 plus 15%, which is £28.75.
So the shelf price rises by about 6.5%, not by seven percentage points and nothing like double. A higher rate of 12.5% went into the same single rate, but it had applied to a narrow list of goods a clothes shop would rarely have carried. For most of the trade this was eight to fifteen across the range.
Now run it the other way, which is the decision the shopkeeper actually faced. Leave the coat at £27 and the tax takes its 15% out of that, leaving the shop £23.48 instead of £25. You have given away £1.52 a coat, a little over six per cent of everything you keep, and it comes out of gross margin rather than off the top of turnover, which makes it a much larger proportion of the profit than of the price. For most shops six per cent of net takings is a large slice of the year's profit. That is the size of the thing being decided in six days.
Half the shop did not move at all
The complication in a clothes shop is that the rate change did not apply evenly across the stock.
Children's clothing and footwear were zero rated, as they still are. So a shop selling both had part of its range moving by 6.5% and part not moving at all, the two hanging on the same rail. Explaining why one went up and one did not, to a customer who had heard that VAT had nearly doubled, was a conversation repeated all summer.
The bookkeeping changed too. VAT was administered then by Customs and Excise, and a shop that cannot invoice every sale separately accounts through a retail scheme, which depends on splitting takings between rates. Change the rates and every one of those calculations changes in the middle of a quarter.
The stock was already bought, and the tax is on the sale
The hardest part is the one with no decision in it.
VAT is charged on the supply, not on the purchase. A garment bought in March and sold in July is taxed at the July rate, whatever was paid for it and whenever it arrived. So the stock in the stockroom on 18 June had been bought against a set of retail prices that no longer applied, and there was no way to unbuy it.
Two things followed. The summer sale, which most shops had planned and some had advertised, now had prices moving in two directions at once: down for the sale and up for the tax. And the autumn range, ordered in the spring, arrived into a shop whose whole price structure had been rewritten since the order went in.
The timing of the wider change did not help. The same Budget cut the basic rate of income tax from 33% to 30%, a shift from taxing what people earned to taxing what they spent. That may leave a customer no worse off across a year. It does not leave them no worse off in June, because the tax on the coat changed on a Monday and the pay packet changes when the payroll catches up. A shop lives in the gap between those two dates.
Passing it on is a decision about the customer, not the tax
Every shop that June made the same choice in one of three ways, and it had almost nothing to do with accounting.
Pass it on in full and your prices are honest, your margin is intact, and every ticket in the window has gone up in a week. Absorb it and you hold the price, hold the traffic, and pay for both out of the only money in the business that is yours. Split it and you get a smaller version of each. What decides it is how much of your trade is comparison shopping and how much is habit: a shop where people arrive knowing what they want and roughly what it costs is a shop where the ticket gets checked.
The one thing that did not work was pretending. A ticket left unchanged is a promise you are keeping at your own expense, and in a year of rising costs that promise gets dearer every month you keep it.
Where this shows up in the game
Fifteen Per Cent Overnight is a historical start at medium difficulty. You run Vaughan & Vaughan, a clothes shop in Harrogate, as a sole trader from June 1979, for twelve months. The target is £130,000 of annual sales, measured as trailing twelve month takings in today's money at the end of the run.
The standard rate changes in month one, using the tax tables the game already carries, and then you decide who pays for it. You can pass the rise on in full, in part, or not at all. Absorbing it protects your volume and takes it out of your margin, which is exactly the trade the real decision was. Autumn stock is bought before the season and cannot be unbought, so a repricing choice made in June is still shaping October. The run ends if the shop closes or the year finishes short of the target. Nothing else is stacked against you at the start: one shop, one tax change, twelve months to trade out of it.
The seed is fixed at 600004, so every attempt meets the same Harrogate and the same summer, and the scores can be set side by side. It runs under ironman rules: one save, and what happens happens. The Fifteen Per Cent Overnight page sets out the start, the objective and the rules.