Did You Feel The VAT Rise Pinch in January?

11 February 2011, 08:30

The chances are you didn’t, and most of it is due to the January sales. Most people were awaiting the rise in VAT from 17.5% to 20% with bated breath. But when it actually happened it seemed like an anti-climax.

Perhaps this is why the rise was agreed to happen in January. Maybe the government knew that starting it off in the midst of the January sales would soften the blow – at least temporarily. It will be interesting to see whether the prices are noted to increase from February onwards, when most of the sales have finished.

Many news reports also stated that retailers had absorbed the effects of the 2.5% increase in VAT. But how long this will go on for is anyone’s guess. Some shops were using the event as a way to garner good publicity. They held back on adding the amount on to prices, and many were waiting for their rivals to add it on before they did. Other shops decided to alter the prices straightaway.

In reality the price you will pay for goods will be higher if you do get the rise in VAT added on to the price. But it all depends on how much you are paying for the item as to whether you will feel the pinch or not. It’s obvious that the difference in buying an item for £5 or an item for £5,000 will be quite marked, so this is where you need to bear the rise in mind.

Needless to say the rise will produce more funds for the government. But in a situation where their many cuts are proving hard to swallow, the VAT increase can be just one more problem and disappointment for many people. It will be the long term effect of the change that will provide the most answers for us. Perhaps we shall forget about the 20% rate after a while, or maybe we will always be counting the pennies. The most intriguing question of all though is whether it will eventually go back down again.