The rate of Value Added Tax rose by 2.5 percentage points at midnight, from 17.5 per cent to 20 per cent – an attempt by the 'Boy' George Osborne to reduce the deficit. He returns to the UK from his luxury skiing holiday in Klosters to preside over yet another financial scam.Analysts believe many businesses such as gyms, mobile phone companies, restaurants and shops will raise their prices by between 5 per cent and 8 per cent, or possibly even more. To recoup the escalating cost of petrol, energy, cotton and other key commodities, they are expected to use the tax change to obscure far larger price increases. This could add far more to a family's annual expenditure than previously expected.
Ed Miliband, the Labour leader, said yesterday that the VAT rise would cost the average family almost £400 a year and put 250,000 jobs at risk. Campaigning in the Oldham East and Saddleworth by-election, Mr Miliband cited a Liberal Democrat poster from last year's general election, that warned a "Tory VAT bombshell" would cost households £7.50 a week.
The increase in VAT has been introduced by the 'Boy'George Osborne, who calculated it should generate an additional £13 billion a year for the Treasury. The increase should, in theory, add 2.1 per cent to the price of the majority of items on the high street, with the exception of food. For example, an item costing £100 before tax will increase from £117.50 to £120.
Jason Gordon, retail expert at Booz & Co, a leading consultancy, said: "From the retailers I've been speaking to, I expect prices to increase by between 5 per cent and 8 per cent. The majority of retailers will 'round up' rather than 'round down'. There have been so many years of price deflation, retailers need to move up prices to stay profitable. The pressure to increase prices has been building for some time, and that time has come now."
Most clothing price increases will come into effect gradually as the spring and summer ranges enter the shops in a month or two.
A study by KPMG Performance & Technology, the consultancy, found that 60 per cent of retail managers intended to increase prices above the 2.1 per cent. Martin Scott, a partner at KPMG, said: "If everyone was enjoying a healthy time of it, most retailers and manufacturers would just soak up the price increases and not pass them on to consumers.
"But they have been discounting for so long it is impossible to see how they can afford not to pass on the VAT increase, and some more. I'd be very surprised if we didn't see the majority increase prices by far more than the VAT jump."
