VAT (Value Added Tax) is the tax you pay on goods and services that you buy. Some items do not include VAT - food, childrens clothing, newspapers and magazines. Some things only include VAT of 5% - domestic gas, domestic electricity and wind turbines. The coalition government are believed to be looking at raising VAT as a way of raising extra cash - raising it from the current rate of 17.5% to 18.5% would raise about £4.65 billion. As VAT is not generally charged on necessities, the government would be able to argue that a rise wouldn't affect the more vulnerable people in society although with the government finances in such a terrible state, it is something that could be considered. The current rate of 17.5% is one of the lowest rates in Europe with Denmark, Hungary and Sweden charging 25%.
The effect of a VAT increase on the customer
Cuddly Toy
17.5% - £9.99
18.5% - £10.07
20% - £10.20
Flat Screen Television
17.5% - £500.00
18.5% - £504.25
20% - £510.64
New Car
17.5% - £15,000.00
18.5% - £15,127.66
20% - £15,319.15
- £700 million for every 1% increase if it decides to charge VAT on food.
- £1 billion if it decided to charge the current rate of 17.5% on clothes and small shoes for children.
- £1.3 billion if it chose to charge the full 17.5% on newspapers, books and magazines.
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