UK VAT increase

orinoco · Post by **orinoco** » Fri Dec 31, 2010 6:57 pm

VAT goes up from 17.5% to 20% on the 4th of January. This will affect us as both consumers & EREists.
As a consumer
The tax rate should equate to a 2.13% price increase. You can bet that many retailers will sneak price increases over the tax hike. So to give you a simple way of working out whether you are being fleeced[*] or not:
old price new price
£1 £1.02
£2 £2.04
£3 £3.06

(2 pence per pound)

£10 £10.21
£20 £20.42
£30 £30.63

(21 pence per tenner)

£100 £102.13
£200 £204.26
£300 £306.39

(£2.13 per £100)
You'll need to be aware that not everything incurs VAT most food (although see the Jaffa Cake Case), books, kid's clothes & public transport are all exmpt so shouldn't go up at all.
[*]I say fleeced but of course many retailers will be raising prices because they genuinely have to & it is easier to blame the government than to explain the rise in raw material/labour costs.
As an EREist
This is the difficult one, part of me thinks the FTSE will tank, part of me thinks it won't make a great deal of difference because for most people the shops are the only source of solutions so will choose to buy regardless of price.
I can see the big supermarkets getting bigger (no change there).
Any of the older hands here had investing experience around a VAT rise?

Robert Muir · Post by **Robert Muir** » Sat Jan 01, 2011 2:18 am

"part of me thinks it won't make a great deal of difference because for most people the shops are the only source of solutions so will choose to buy regardless of price."
I think people have a nearly infinite capacity to reduce spending when they begin feeling scared. Hence recessions, depressions, and disinflation.

AlexOliver · Post by **AlexOliver** » Sat Jan 01, 2011 3:24 am

Does rent or mortgage have VAT? If not, there's not much in an ERE budget that would go up... rent, food, public transportation.

orinoco · Post by **orinoco** » Sat Jan 01, 2011 1:34 pm

@RobertMuir
Agreed, however, my impression at the moment is most people feel depressed rather than scared!
@AlexOliver
Not completely sure about rent. I believe because my landlord is a non VAT registered private individual so I'm not affected. I know I will not be paying any increase until the next review in April. If I were to rent a property owned by a company I would have to pay the increase.
Unfortunately rent rates are at historic highs (average for 1 bed place is £760/month) because almost no one can afford to buy.
No idea about mortgage payments, & hopefully will never have to find out.
Can't believe I forgot fuel duty went up yesterday too. VAT plus duty should add 3p per litre of petrol

AlexOliver · Post by **AlexOliver** » Sat Jan 01, 2011 1:55 pm

Also, what does it matter if somebody raises the price of their service or product at this time, to mask it under the increase in VAT? Would you refuse to buy something simply on that basis?

orinoco · Post by **orinoco** » Sat Jan 01, 2011 4:26 pm

I think it matters because it might just give you an indication as to whether you are paying over the odds. I think it is wise to be more careful with your money around times of changes to tax law.
I only buy things if it represents good value to me (I rarely buy anything other than food & fuel. I bought a honing steel a couple of days ago, before that I bought a pair of theatre tickets back in August), but if the price rise was over the 2.13% it would certainly make me stop & think that little bit more.