4 Jan 2011

British VAT rate goes up to 20%

8:30 pm on 4 January 2011

The top rate of VAT, the British goods and services tax, has risen from 17.5% to its highest level of 20%, as the government looks to boost tax revenues in order to reduce debt.

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

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

The VAT rise is also a worry for the Bank of England.

At 3.3%, the annual rise in the consumer price index is already well above the bank's target of 2%, and analysts say the higher VAT rate is likely to push inflation towards 4% this year.

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