Will the new 20% VAT rate send firms out of business or is talk of a retail armageddon overblown hype? Jez Davison gets the views of Teesside firms.

DANIEL Richmond is staying positive despite the depressing headlines in the wake of last week’s rise in VAT.

The founder of Darlington online fashion store, Tic Watches, cares less about the record 20% VAT rate than the possibility of more bad weather, which disrupted deliveries of his designer accessories last month.

While the rate increase from 17.5% has squeezed his margins, he says he can cope by boosting sales and - for the time being at least - has no plans to pass on the rise to customers.

But he concedes he may have to eventually as suppliers hike up their prices.

It’s a dilemma facing many Teesside retailers this winter and one from which they cannot shy away.

Chancellor George Osborne claims the 20% rate is here to stay despite a ferocious backlash from business groups and opposition parties.

Mr Osborne defended the move, claiming it will boost employment and raise £13bn a year for the public coffers.

But Labour leader Ed Miliband hit back, claiming the “regressive” policy could halt the economic recovery in its tracks.

Research appears to justify his fears.

The VAT rise will cause retail sales to plummet £2.2bn in the first three months of the year, according to Centre for Retail Research - causing more misery for retailers after a difficult festive period.

HMV said it would close 60 UK stores after seeing like-for-like sales in the UK and Ireland slump 13.6% in the five weeks to January 1.

Meanwhile fashion chain Next reported a 6.1% drop in like-for-like sales between August and Christmas Eve.

But Teesside firms say the VAT rise is no great cause for concern.