George Osborne today unveiled a rise in VAT from 17.5 per cent to 20 per cent, to be effective on January 4th, 2011.
The Chancellor’s move was one of the central elements of today’s Emergency Budget, in a bid to reduce the ballooning deficit.
During the run-up to the election, the Conservatives never ruled out a VAT rise, and they took care not to raise the issue wherever possible.
Labour were steadfast in their opposition to a rise in value added tax, branding the tax as essentially unfair and regressive and hardest-hitting on the poorer members of society.
The additional two and a half per cent rise in VAT will cost the average household around £400 extra each year.
But the government needs money fast, and a VAT rise is one of the quickest routes to raise quick cash - £13 billion by government estimates.
Osborne called the rise ‘unavoidable’, but pledged to keep the status quo of zero-rated items like food and newspapers, with no rise planned for the duration of his parliament.
Although the VAT rise is not taking effect until next year, nearly all retailers will lift their prices to compensate before the end of this year, and two-thirds will take steps to hike prices immediately, according to a report by the Centre of Retail Research.
