Households' £6bn cost of VAT rise

Households will be more than £6 billion worse off after VAT rises next month, according to a new report warning businesses of a sharp drop in consumer spending.

Expenditure will increase by 6.2 billion when VAT jumps from 17.5 to 20 per cent on 4 January, with consumers suffering a total 2.3bn loss of discretionary income, marketing services firm Acxiom has estimated. It said the average British household would be 225 a year out of pocket.

Stephen Whyte, chief executive of Acxiom Europe, said: "The VAT rise of 2.5 per cent may seem insignificant, but it is actually going to have a major effect on many UK households' finances, as our Affordability Report reveals."

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It predicted that people who can currently afford to eat out and spend more on consumables could be hardest hit as they are pushed into the "overstretched" band.

"This report indicates that many sections of the business community - from those awaiting payments, such as mobile phone companies and credit card providers, to retailers trying to stop people being priced out of the market - need to be aware that the VAT rise is going to change household outgoings, and that some consumers will be more adversely affected than others," said Whyte.