VAT increase Q&A: what is affected and how does the tax work? - Telegraph.co.uk

An item that currently costs £100 will cost an extra £2.13p.

Why is the Government doing this?

The Government expects the increase to raise an extra £13 billion a year to help plug its £149 billion a year budget deficit.

How long will it be kept so high?

George Osborne, the Chancellor, recently said the scale of the UK's borrowings meant the rise "could not be temporary". Most analysts expect VAT to stay at 20 per cent until at least the next general election.

What effect will it have on the economy?

There are fears that the increase in VAT will deter consumers from spending and could even contribute to pushing the UK back into a 'double dip' recession.

Retailers recently reported that consumers have brought forward purchases to beat the VAT hike, leading to fears that sales in 2011 will suffer.

The rise in VAT is expected to help keep inflation well above its two per cent target for the whole of 2011, and will make consumers feel poorer.