What does the VAT increase mean for us?

journobarbie, vat rise, increase, tax

As of this Tuesday the rate of VAT rose from 17.5% to 20%, a rise which has ruffled more than a few feathers across the UK.

Many are arguing that the rise will affect the poorest percentage of the population the most, with Labour List figures stating that 19% of the average income of the poorest 10% of the population will be spent on VAT whereas the richest 10% will lose only 9% of their income to VAT.

Research by The Centre for Retail Research and online shopping group Kelkoo suggests that the rise will cause a £2.2bn drop in retail sales in the first quarter of the year – definitely not a boost for the economy when we really need one.

The rise affects luxury items so food, children’s clothes and newspapers are not affected by the change.

Chancellor George Osborne defended the hike saying that it was the best of options available, and is better than a raise in income. Mr Osborne believes that it could boost employment and the Treasury says that it will generate an estimate £13bn this year.

The increase has put fuel into the fire of the Labour party’s attack on the coalition government.Labour leader, Ed Miliband has said that David Cameron himself said in the general election campaign that a VAT increase was unfair.

He said: “Everyone knows that the poor and middle-income households will be hit the hardest. He [Mr Cameron] should come out and apologise for misleading the British public.”

Shadow Chancellor Alan Johnson consolidated Mr Miliband’s point saying: “This is a broken promise – this was the big issue of the general election campaign.”

To put the VAT rise into perspective here are some estimated price changes:

Mobile phone bill: was £40 per month > now £40.85 (+85p)

Fridge-freezer: was £269.99 > now £275.73 (+£5.74)

Vauxhall Corsa: was £7,199 > now £7,352.17 (+153.17)

So as you can see the more you spend the more you will notice the change, however Labour leader Ed Miliband has said that the rise will cost the average family an extra £7.50 per week and is the “wrong tax at the wrong time.”.

We couldn’t agree more. What are your thoughts on the rise?

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