The rate of value added tax, or VAT, was increased by 2.5 per cent to 20 per cent on January 4.
It’s that little bit extra the government hopes will raise £13bn a year to tackle Britain’s deficit.
The hike was imposed amid a media storm, but was it justified? We break it down so you can decide.
What is taxed?
Before making any judgments, it’s worth knowing what VAT actually applies to.
You won’t be charged extra on your groceries.
However, prices have been bumped up on alcoholic drinks and junk and takeaway food.
Gym memberships have also been hit, as have theatre and movie tickets and electrical items.
There is no VAT on transport, but some bruising hikes have already made up for that.
Retailers take advantage
The price of just about every high street commodity will increase and retail experts warn that shops are likely to take advantage of the situation by increasing prices even more.
They predict that a majority of retailers will round up rather than round down and say price rises between 5 and 8 per cent are likely.
“We are being manipulated into actually spending more,” says retail psychologist Philip Graves.
A popular tactic is the .99p ‘charm price’ on the tag which draws people to an item. However, the VAT increase would demand unattractive prices such as £32.20, so retailers may advertise that some of their prices have not changed, but increase other items far higher than the VAT rise
– from £34.99 to £39.99, for example.
“Amazingly, people will buy something for £39.99 more readily than £32.20,” Graves says.
Sarah Dennis, retail expert from consumer magazine Which?, warns shoppers not to be caught unawares. “By law, retailers don’t have to change their price tags until February 1, so be careful as you may get hit at the till,” she says.
What’s going up?
VAT has been called a tax on luxury – an accurate label given its a price hike on the things we enjoy. A seat at the Victoria Palace to watch Billy Elliot has increased by 4.2 per cent to £62.50. Not even the guilty pleasure of a McDonald’s Big Mac is sacred, with the price of the burger hiked up
from £2.39 to £2.49 – that’s 4.2 per cent.
“Because of the January sales, it’s hard to tell which items have been subject to the increase. Some online cosmetic companies, for example, have increased the prices of new stock, but not the old stock they are trying to shift,” Dennis says.
Clothes retailer White Stuff has hiked up the prices of its items and Comet, supplier of electrical goods, has not hesitated either.
The British Beer and Pub Association, and dare we say TNT readers, are reeling over the impact of the increase on a pint. The rise has put the cost squarely above the £3 mark, with drinkers now paying a sobering £3.06 for the average pint.
What’s staying put?
Patrons of the Walkabout pubs can breath a sigh of relief that the chain will absorb the hike for the “forseeable future”, and Majestic Wine will suspend the rise on its bottles until the end of January.
Marks & Spencer and John Lewis have pledged to introduce price rises on their items gradually.
Tickets for shows such as Mamma Mia and Les Miserables among others will only start to pass on the rise when new runs begin. The cheapest ticket for a non-member at the Prince Charles cinema in Leicester Square will remain at £5.50.
Ping Ping Pong dim sum restaurant chain is also sparing its customers the increase.
See HM Revenue & Customs for a definitive list of VAT-affected items.
