VAT is increasing by 2.5% from 17.5% to 20% today as part of the Governments’ drive to reduce the budget deficit.
Consumers throughout the UK will see many prices raises today at the rate of Value Added Tax rises to 20%. This rise affects almost everything purchased except food, childrens’ clothes, books, newspapers and magazines.
Although the rise in VAT will add only small amounts to each purchase – around £10 extra to the cost of a £500 TV, for example – it will be most noticeable with the costs of petrol and diesel which have already increased because of the rising costs of Crude Oil and additional fuel duty.
It has been estimated that the average family will pay an additional £500 per year in VAT each year, which will help reduce the Governements’ debt, but will add an additional burden to already stretched personal finances.
Rising prices will lift the rate of inflation, which at 3.3% is already well above the 2% target agreed by the Government and the Bank of England.
Some experts are predicting inflation to rise to 4% this year, a prediction made more likely by the rising cost of oil, which will increase the calls for a rise in interest rates to stop the economy overheating.