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VAT rate rises from 17.5% to 20%

The standard rate of VAT has risen from 17.5% to 20% as the government looks to boost tax revenues to cut its deficit.

Business groups have warned that retailers will be hit by the increase, while opponents of the rise have said the poorest will be hit hardest.

The government says the rise is necessary to help bring down the UK's high budget deficit.

Chancellor George Osborne said the move was more 'progressive' than a hike in income tax or National Insurance

Food, children's clothing, newspapers and magazines are not subject to VAT

When unveiling the VAT rise over the summer, Chancellor George Osborne said it would raise more than £13bn a year by the end of the parliament.

However, the Labour opposition has accused the government of penalising low-income families.

Labour leader Ed Miliban said it was the 'wrong tax at the wrong time', arguing that the rise would hit families at a time when they will be under pressure from government spending cuts.

And shadow chancellor Alan Johnson has warned the move is likely to hit poor hardest.

But Mr Osborne told the BBC on Tuesday that targeting VAT was more 'progressive' than increasing income tax or National Insurance.

Although they will end up paying less VAT in total, lower income households spend a bigger share of their incomes on taxed goods, meaning they are proportionately harder hit.

To read the full article please visit www.bbc.co.uk

06 January 2011

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