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Tax hike will hit families hardest, experts warn

January 5th, 2011

Yesterday’s Vat rise will cut consumer spending and cost jobs, experts have warned.

The ConDem Government are increasing the sales tax from 17.5 per cent to a record 20 per cent.

But analysts say shoppers will curb their spending after a “last hurrah” in the sales.

The VAT rise means what costs £100 will be £2.13 more expensive tomorrow – with the increase going to the Treasury.

Hard-pressed drivers are being forced to stump up at least 3p a litre more at the pumps and drinkers will have to pay 6p extra for a pint of lager.

The cost of household goods will rocket, with the VAT rise putting more than £300 on the sticker price of an average family car and £20 on a new fridge-freezer.

Building industry representatives warned rising prices would slash the number of domestic repair jobs, leading to lay-offs.

Most goods and services incur VAT but healthy food, kids’ clothes and books, and bus and train fares are exempt.

Labour have warned the less well off – who spend a higher proportion of their income on VAT-rated goods and services – will be hardest hit by the move.

The hike – breaking a Tory vow that they had “no plans” to alter VAT – will raise £13billion a year.

Chancellor George Osborne claims it is necessary to help bring down the deficit. Some retailers have promised to “phase in” price rises over the coming weeks.

Online shopping group Kelkoo said £22.5billion will be spent in the January sales, up 1.6 per cent compared with last year.

But they predicted consumers would spend on average £324 less in 2011 than last year, causing tough times on high streets.

They expect retail sales to fall by £2.2billion in the first three months of the year.

A spokesman for the British Retail Consortium warned shoppers would notice higher prices when the sales end.

He added: “Ultimately retailers can’t absorb the cost indefinitely.

“It will push inflation up and, along with National Insurance rises and public sector job losses, harm sales as the year continues.”

Labour highlighted the blow to car drivers and hauliers, who had 0.76p slapped on petrol and diesel prices on New Year’s Day.

Shadow Scots Secretary Ann McKechin said: “As if the snow and ice weren’t causing enough problems on the roads this winter, the Tories are adding to Britain’s travel misery by increasing fuel duty and VAT.

“The Government need to understand that these tax increases will hit drivers on low incomes the hardest and push up the price of petrol and diesel to a new record high.

“Scotland will suffer badly because we already have some of the highest prices in the UK. I want these tax increases scrapped.”

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