If VAT Rises To 20% Today…

Published: 22 June 2010 By Chris RayFollow me on Twitter Leave a Comment

All the signs point to a tough budget today and I have to say that unfortunately it is needed to chip away at that £155 billion deficit. If the Chancellor does raise VAT to 20% today, what impact will it will have on our pockets?

Well the boffins at the Centre for Retail Research, on behalf of Kelkoo have studied the impact of a possible VAT increase to 20% and this is what they found.

The cost of petrol would rise by 2.5p per litre. Now although petrol prices have fallen slightly recently (unleaded costs £1.14 per litre at my local Sainsburys) the increase from a VAT rise would be permanent and would add more to the cost of fuel, the more expensive it gets.

Cigarettes costs would increase by 12p per pack, and alcohol will be affected as the cost of a pint of lager or a glass of wine would rise by 7p on average.

A flat screen TV costing £1000 would cost an additional £25 so order one quickly if you believe that England will get through to the next round of the World Cup!

These are specific items, of course, but we have to remember that VAT is applied to most things that we buy. In fact the research shows that a VAT rise would cost the average household an extra £1.16 per day, totaling £425 a year. Ouch!

The problem for consumers is that if VAT does rise to 20% today (and it may not, of course) then it is very unlikely ever to come back down to the current 17.5% level, particularly as we have some of the lowest VAT rates in Europe.

So if the Chancellor does bite the bullet and increase VAT to 20% then expect almost everything you buy to cost more tomorrow and in the future. Inflation, here we come!

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