The VAT-freeze illusion: Stealth rises cancel out stores' big tax promise

Oxford Street

Tax increase: In recent weeks, High Street stores have pushed up the prices of products that carry VAT

High Street stores have imposed thousands of price rises ahead of the VAT increase that comes into effect tomorrow.

Some of them claim to be protecting shoppers against the increase – but in recent weeks they have put up the prices of many products that carry VAT.

Leaked figures show that stores such as Tesco, Boots and Morrisons have increased prices on a raft of products, including pet food, confectionery, and beauty products.

The Government is pushing VAT back up from 15 per cent to 17.5 per cent on New Year's Day.

Chancellor Alistair Darling cut the sales tax last December on the basis that it would reduce prices, so encouraging people to spend and help the nation out of recession.

But there are mounting suspicions that retailers have used the one year reduction to boost profits at the expense of shoppers.

Many stores did not pass on the cut in lower prices, while others made only temporary reductions.

All the major supermarkets – Tesco, Asda, Sainsbury's and Morrisons – have enjoyed bumper profits in the past year at a time when some customers have struggled to put food on the table.

Restoring VAT to 17.5 per cent will bring in more than £11billion to Government coffers this year.

Tesco is advertising a £12million VAT freeze, so apparently offering a helping hand to hard-pressed shoppers. It also promoted 5,000 price cuts in the run-up to Christmas. 

But the Daily Mail has learned that the chain increased the price of 1,577 popular items – some 6.3 per cent of its range – in December.

The Tesco increases included 500 items that are subject to VAT including bedding, cooking equipment and crockery.

Tesco has been tempting customers by doubling the points offered with its Clubcard loyalty scheme, which offers money-off vouchers and other benefits.

But an industry insider said: 'The figures show Tesco putting up the cost of Christmas to compensate for VAT and possibly, to compensate for the money it has given away by doubling Clubcard points earlier in the year.' 

VAT reduction

Sales tax: The Chancellor cut prices last December to encourage spending

Boots says it is not introducing a blanket VAT price rise on New Year's Day.

But the industry data shows it has increased the price of more than 1,500 product lines by an average of 2 per cent in the last 12 weeks.

Morrisons, which is not claiming a VAT freeze, increased the prices of 400 products earlier this month by an average of 2 per cent.

Tesco insisted its price changes had 'no link whatsoever' to the VAT increase.

It said: 'We work hard to keep prices down for customers which is why we have frozen VAT on thousands of products at the lower rate of 15 per cent. This is on top of 5,000 price cuts over the last two weeks with average reductions of over 10 per cent.

'A small proportion of products will have increased in price but this is either because of special offers coming to an end or an increase in the cost price. 

'Many more prices have fallen than have increased and overall consumers continue to get a great deal.'

Boots said: 'We believe our customers want great value at this time of the year and we are offering a fantastic January sale with discounts of up to 50 per cent off a wide selection of products.

'We are also continuing to benchmark our prices against other retailers and regularly reduce prices to ensure our offering is competitive. For example, we are lowering the prices of over 200 items in January.'

Morrisons said: 'Throughout the year prices vary, reflecting costs and promotional changes across the weekly shop. However, at Morrisons we aim to offer great value for money.

'For example, between October and December we have reduced the prices of over 700 health and beauty products.'

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