The government decided last week to reduce VAT (valued-added tax) from 17.5% to 15% - a cut of 2.5%. This was done to try to stimulate consumer spending during the recession. Everyone in the UK (including students) is required to pay VAT on goods and services - you won’t normally see it as it’s incorporated into prices. The new VAT rate comes into force from Monday, 1st December 2008.
Previously a new TV costing £99 (inc. VAT) will consist of the following:
- Base price: £84.26
- 17.5% VAT: £15.74
With the new VAT rate of 15% the same TV should now cost you £96.90. This is a reduction of £2.10, which equates to 2.13%. So in reality the 2.5% cut in VAT will only result in a 2.13% reduction in prices as the VAT is charged on top of the base price.
Previously a new TV costing £99 (inc. VAT) will consist of the following:
- Base price: £84.26
- 17.5% VAT: £15.74
With the new VAT rate of 15% the same TV should now cost you £96.90. This is a reduction of £2.10, which equates to 2.13%. So in reality the 2.5% cut in VAT will only result in a 2.13% reduction in prices as the VAT is charged on top of the base price.
So what does this mean for students?
Well you should find that there’s a 2.13% reduction in prices on all goods and services which are subject to VAT. However, this is likely to be slightly more as businesses are unlikely to price goods at funny prices - they like round numbers. 
So if we go back to the TV example it’s likely that the retailer will now sell the TV for £86. You may find though that there isn’t a reduction in price - instead the retailer will increase the base price so that the VAT inclusive price remains the same as before. For the TV example the retailer may increase the base price to £86.09 which will mean that the end price is still £99.
We don’t believe this new VAT rate will affect students very much at all. Either prices will remain the same or alternatively we’ll see a reduction in prices but it’s so minimal you’ll hardly notice it (unless you’re spending hundreds of pounds!).
You may find that you end up paying more in the longer term when you graduate from uni because the government needs to make the money back it’s lost in VAT from somewhere - it’s likely VAT will rise in the future or they’ll find another tax to try and make some money. From current reports it looks like VAT will return to 17.5% at the end of 2009, before rising again to 18.5% in 2011-2012.
So if we go back to the TV example it’s likely that the retailer will now sell the TV for £86. You may find though that there isn’t a reduction in price - instead the retailer will increase the base price so that the VAT inclusive price remains the same as before. For the TV example the retailer may increase the base price to £86.09 which will mean that the end price is still £99.We don’t believe this new VAT rate will affect students very much at all. Either prices will remain the same or alternatively we’ll see a reduction in prices but it’s so minimal you’ll hardly notice it (unless you’re spending hundreds of pounds!).
You may find that you end up paying more in the longer term when you graduate from uni because the government needs to make the money back it’s lost in VAT from somewhere - it’s likely VAT will rise in the future or they’ll find another tax to try and make some money. From current reports it looks like VAT will return to 17.5% at the end of 2009, before rising again to 18.5% in 2011-2012.
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