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How Will the VAT Price Hikes Affect You?

By: Sarah Clark (ILEX) - Updated: 13 Jan 2011 | comments*Discuss
Vat Price Increase Hike Cost Tax

The VAT we pay on everyday goods increased as of 2 January, and it’s a measure that’s likely to affect just about all consumers.The rate of VAT increased from 17.5 per cent to 20 per cent, and it’s estimated that this change will cost the average household something in the region of a extra £520 a year, according to price comparison websites.

Economists have predicted that the measures will lead to reduced consumer spending, hardly surprising in the austere financial climate. It’s not just shops that are affected - gyms, mobile phone companies, and restaurants have also started to increase their prices by between 5 and 8 per cent, to recoup their own escalating costs.

What Will the VAT Rise Mean for You?

It’s important to remember that not everything you buy is subject to VAT in the first place – it’s only added to ‘luxury’ items, or what the government consider to be luxuries anyway. Some vital bills such as fuel and domestic energy also attract VAT but at a lower rate, currently 5 per cent.

Most food, books, magazines, newspapers and magazines, baby clothes and children's clothing are exempt from the tax.

What are The Retailers Doing About the VAT Rise?

Some of the bigger, high street retailers have said that they won’t introduce the price rises straight away. Marks and Spencer, Tesco and John Lewis are among the big names that have pledged to delay the price rises for at least a few weeks. Boots has introduced the changes already, as has high street electrical giant Comet.

Superdrug might be a good option on own brand items for now, as the stores have pledged to absorb the VAT rise on 2,000 own brand products.

Clothes shopping has already become more expensive in some stores - Next and Primark introduced the price hikes straight away. The Office for National Statistics said that the hikes started early for clothes shoppers, as many retailers were already increasing their prices by the end of 2010. The price of clothing apparently increased by a whopping 11.3 per cent on an annual basis in November, which is the highest increase since records began 30 years ago.

Online, Amazon introduced 20 per cent VAT to any items ordered from the date that the VAT increased.

Some mobile phone companies are already charging extra, such as O2 and Three Mobile and charges are increasing on extras such as text messages.

Consumers who rely heavily on their home phones may be hit hard as many people don’t realise that VAT is charged on every single call they make. If you pay for your home phone, TV and broadband services separately rather than in a bundle, you could also be surprised with a large increase in your monthly bill. It’s already likely to cost a consumer who sources these things separately more if they get them from different providers.

The best way to beat the VAT hike for home services like this is to go for a deal with a single provider, which can save as much as £300 per year.

Fitness and Health

If you’ve made a new year’s resolution to get fit and join a gym, it’s going to cost you more now than if you’d joined and got a deal in December 2010. Most of the big fitness chains , including Fitness First and LA Fitness and Fitness First have even written to existing members telling them that their monthly gym pass has got more expensive.

VAT Deals

If you’re planning to splash out on a big item like a TV in the new year sales, you might find that some of the big retailers are enticing consumers in with ‘VAT cash back’ deals. Sony is probably the best known of these, but it’s definitely worth doing a price comparison check online and seeing who else might be offering a deal to beat the gloom of the VAT increases.

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