VAT rises to record 20% but what impact will it have?

04/01/11

The tax on many things we buy, called VAT, has risen from 17.5% to a record high 20%.

It's part of the Government's plans to rein in the UK's national overspend after the recession.

It means that most goods or services will cost you more.

The rise is coupled with an increase in fuel duty, which came into force on 1 January.

It means people like electrician Dan Packman (above) will be paying more for petrol.

What is VAT?

VAT - or Value Added Tax - is added to many things we buy and services we use.

This can be anything from toys, televisions and cars - to your mobile phone bill, or a pint in the pub.

It's not added to products like healthy food, water, children's clothes, newspapers or books.

Calculate VAT rise

How much more do things cost following the VAT rise to 20%?

Price £

How much has it gone up by?

I'm a single parent and a student ... many things I need will be affected by this yet I'm not getting any more money
Adam Taylor, 32, posting on
Newsbeat's Facebook page

It's risen from 17.5% to a record high level of 20%.

It's the second increase in just over a year - after it went up from 15% from the start of January 2010.

In most cases, it means something that cost £100 yesterday will set you back £102.13 today.

Some retailers though, say they will absorb the increase instead of passing it on to customers.

Other big outlets - like Marks and Spencer and Debenhams - say they will pass on the rise gradually over time, to soften the blow to customers.

Why is the Government doing this?

Ministers say the increase will raise an extra £13 billion a year - to help to plug the gap between the money the UK has available and the amount it spends.

Much of the gap was built up over the recession - when the previous Labour government borrowed money to try to keep people in jobs.

How long will it be kept so high?

Chancellor George Osborne recently said the scale of the UK's borrowing meant the rise "could not be temporary".

Most analysts expect VAT to stay at 20% until at least the next General Election - not expected until 2015.

What effect could it have on the economy?

‎2.5% isn't that huge unless you're buying expensive items, and lets face it, if you're prepared to spend £1000 on a new TV, £25 isn't that much
Caroline Smyth, 26, posting on
Newsbeat's Facebook page

Opponents say the poorest will be hit hardest, while business groups say it will stop people spending and could put more people out of work.

Labour leader Ed Miliband says it's the "wrong tax, at the wrong time".

He says the rise will cost the average family £7.50 a week.

Many shoppers tried to beat the VAT increase by buying goods before the increase came in.

Tickets for many festivals were also put on sale early.

There are fears the rush to spend ahead of the tax rise could mean a slow-down in spending for the next few months.

What's happening to transport costs?

Train users will have noticed many fare increases after the New Year.

The average price rise for tickets is 6.2%.

There is no way this constant increase can be sustained. I judge if I can go and see mates on the fuel costs to get there and back and how much money I have left in the month....
Peter Hazelgrove, 20, posting
on Newsbeat's Facebook page

The government says the move is to shift more of the cost of rail travel to passengers rather than taxpayers more generally.

Road users have been hit by a triple whammy of rises.

Cars and fuel are subject to VAT - but there's also been an increase in fuel duty.

Separately, the price of crude oil has increased too.

The combined effect pushes the average price of a litre of unleaded to £1.24, while diesel costs, on average, £1.28 a litre.

In some parts of the country, the price of fuel is as high as £1.45 a litre.