PRICES AND INFLATION WILL RISE AS VAT GOES UP IN JANUARY

"No Sire, I promise, there will be no increase on Duchy Originals. No one could possibly consider them a luxury unless they were a registered sadist." Prince Chick enjoys a cup of tea, while wee Osborne is only allowed a glass of water and the guy at the back stifles a yawn.

So from January 4, VAT is set to rise from 17.5% to 20%. It will push up prices of a wide range of goods and services.

There are some things which are VAT exempt such as most food items, books, newspapers, magazines and children’s clothes.

But the increase will apply to items which the government considers to be luxuries; for example chocolates, ice cream, biscuits, etc.


Of course, when the last government reduced VAT in order to try to stimulate the economy by reducing prices, we all laughed at them. It was, we said, a matter of a few pence here and a few pence there. A t-shirt from Primark came down 6p; one from Next by 15p. A pair of shoes was maybe 40p cheaper. Even on big items the price difference was small enough not to make a huge difference. If you were going to spend £1000 on a tv, the saving was only around £20. Not much on that level of expenditure. It certainly wasn’t going to persuade you that, yes, after all you could afford it.

It’s the same kind of rise. A few pence here and there added to the price of ordinary items and even with big items, it’s not an earth shattering amount. Even a car which was priced at £15,000 will now have a price tag of £15,300.

However, in as much as the last government maintained (and was backed by figures) that the VAT reduction stimulated the economy, the VAT reduction will serve the opposite purpose.

The government reckons that the move will bring in around £13 billion... and that’s money that will now not be used to purchase other goods, keeping other stores and businesses alive. Another downer is that there will be an upward effect on inflation.

Of course if you go to France you’ll find VAT is already around the same percentage at 19.5% and in Germany it is at 19%. In some of the more prosperous countries of the Union VAT is far higher. However, it should be remembered that in different countries, different levels of other taxes may make up for this for example income tax starting at a far higher level or charged at a smaller percentage.

One question I have always wished to know the answer to is: there are items here which are exempt for the tax: essential foods and children’s clothes I can understand. What I do not understand is why books, newspapers, and magazines are VAT free.

It’s not that Mr Murdoch wouldn’t like it, is it?