In November 2008, Alistair Darling announced that VAT would be cut from 17.5 per cent to 15 per cent in a bid to get us spending again.
By the end of March 2009, that VAT cut should have put an extra £3.8 billion back into our pockets. When the cut came into effect on 1 December 2008, prices were being cut at the till, so £9.99 suddenly became £9.78.
But since the New Year, some viewers have spotted that in stores where prices did come down after the VAT cut; they seem to be creeping back up again.
Price rise
Wendy Fordham noticed that too. She shops at Matalan and when she purchased a bathmat in January costing £5, she was given back 11p at the till to account for the VAT cut. However, when she went to buy another mat three weeks later, the price had risen back to £5.
Some of you say that prices have gone back to their old levels at other stores too. Like at Next, the high-street fashion and home ware store. Prices did initially come down there but viewers told us that some prices have recently risen again.
Both Next and Matalan say they're not being sneaky. They blame price rises on the increased costs they're now paying for stock which, effectively, has cancelled out the VAT reduction.
Not everything
To make things more confusing, when we asked some of the other big high-street names if they really had passed on the VAT cut, they told us they had, but not on everything.
Supermarket chain Asda is making reductions more selectively rather than across the board on its products which attract VAT. It has lowered the price of what it calls its "essential food and clothes items", which it says will benefit customers more.
It's the same at McDonalds. Buy a Big Mac now and it's 10p cheaper than in November. But some things on the menu haven't gone down at all. McDonalds says it's targeting price cuts on the ones customers buy more often, and that the cuts it's making are often more than the 2.5 per cent VAT reduction.
Complaints
Watchdog has also received complaints about odd ways other big companies have passed on the VAT cut.
Some members at David Lloyd gyms have told us they'd have liked to see their monthly fees reduced to account for the VAT reduction. David Lloyd says that's too complex since customers are on a large number of different price plans. So instead, it's taken five per cent off the cost of things their customers will pay extra for, like a massage or a facial.
Orange experienced technical difficulties when the VAT cut was announced and so couldn't pass on the savings to its broadband customers until February. When it did work out how to do it, it didn't backdate the £500,000 savings customers would've made. It gave the money to its charity instead. That's a generous offer, but some customers claim they should've been given that choice instead.
Matalan's response
"Matalan has been passing on the 2.5 per cent VAT reduction to its customers since the reduction came into effect on 1 December 2008. Matalan initially passed this directly onto its customers at the till point when customers paid for their goods. Now the new Spring ranges have been launched across the business, Matalan stopped this as it's incorporated the 2.5 per cent reduction into its prices.
"While the rate of VAT reduced by 2.5 per cent from 17.5 per cent to 15 per cent, this did't mean that prices decreased by 2.5 per cent. Matalan is required by law to charge VAT inclusive prices; this means that the price customers see in store includes the tax the government is charging customers.
"The bathmat in question that has a £5 price ticket, for example, is really a bathmat priced at £4.26 on which the Government charges a customer 74p of tax. Reducing the tax rate by 2.5 per cent only reduces the tax part of the price on the price ticket: the £5 bathmat decreased to £4.89 because the government is now charging 63p in tax instead of 74p.
"Matalan's new spring ranges have been launched which have incorporated the VAT reduction into the ticket prices. However, cost prices have changed in the past few months and many have increased.
"As a result of Government policy, the pound has been significantly devalued versus the dollar by as much as 30 per cent, which has resulted in a significant increase in costs. Matalan decided that it would not pass on the full cost price increases to its customers, but as in many cases those increases significantly exceeded the small reductions in prices caused by reducing VAT.
"Even after Matalan absorbed some of the cost price increase, some products have ended up being at the same price as before the VAT reduction, as was the case with this bathmat in question that is now priced £5.
"Matalan assures its customers that it has passed on the change in rate of VAT and remains committed to absorbing as much cost pressure as possible to deliver fantastic value for our customers."
Next's response
"When the VAT reduction was introduced by the Government on 1 December, we took the decision not to re-price all of our products to reflect the decrease, particularly as many of our products would not be continued into the new season, and so an adjustment to the value of the VAT decrease was applied at the till point from 1 December until close of business on 24 December.
"Our sale prices were not calculated until after the Government announced the change to the VAT rate and we were therefore able to incorporate the new rate into our sale prices, which are all at least 50 per cent lower than the original selling price.
"The beginning of our new season is a point at which we'd commonly review the prices of any items being carried forward from the previous season, and when doing so we have had to take into consideration the reduction in value of sterling against both the euro and the US dollar, which has meant that our cost prices have increased. Those increases in costs are therefore being reflected in the pricing of our products for the new season and whilst we are still passing the VAT reduction onto customers, the prices shown on the garment labels are correct and no further reductions will be applied at the till point with effect from 26 December 2008 when stores re-opened after the Christmas break. I would also advise that the increase in our costs has been higher than the value of the VAT reduction, but we're not passing the full increases on to the customer and are bearing the remainder ourselves."
Asda's repsonse
"When the Government first announced its temporary cut in VAT, we immediately applied a discount to all Asda and George products that were liable to VAT, at the point of purchase.
"Now we've had time to calculate the benefits of this reduction to our customers, we have discovered that we can target the savings more effectively by investing the VAT reduction into lowering prices on essential food items (many of which are not VAT-able) and on essential clothing.
"We are passing on the equivalent of the 2.5 per cent VAT savings, in full, to our customers through these reductions and we 've found that this is the best way to use the money to stimulate the economy in the way the Government intended.
We've spoken to our customers about the changes we 've made and they tell us that they'd rather enjoy larger reductions on essential food and non-food items they have to buy week in, week out, than save a few pennies on one off items."
McDonald's response
"We've been passing on the full VAT price reduction in a way that we consider is of most value to our customers by concentrating on a range of menu items that are popular with all of our customers. With our prices being relatively low we felt it was better to cut the price of our most popular menu items rather than passing on a penny here and a penny there. This way our customers will have had a more meaningful reduction - for example 10p off our Big Mac.
"We are a franchised business, franchisees set their own prices and therefore prices can vary from restaurant to restaurant. We did increase prices on a handful of occasions in 2008 because of the rampant increase in food costs that we were subjected to, just like the grocery market. Overall we kept 2008 price increases below inflation in order to help our customers as much as we could. VAT is a separate issue and we did pass the cut through to our customers from 1st December."
David Lloyd's response
"Following the Government's 2.5 per cent VAT reduction, David Lloyd Leisure has introduced a 2.5 discount on all products which are sold by the Company in its clubs for the whole of 2009 - and has, for the foreseeable future, doubled this discount to five per cent. This discount applies to:
"We've not applied the cut in VAT directly to membership fees, as such changes to our systems are complex in nature, particularly taking account of the variety of ways in which our members pay their fees. Such a step would, for example, require small refunds to those who've already paid annually or quarterly in advance, the price reduction would also need to be adjusted to reflect the element of our membership fees on which VAT is not in any event payable and there would be administratively complex changes to direct debits for those paying monthly.
"The VAT reduction is a short-term Government measure in response to the current economic challenges and we feel that the range of incentives and discounts that we've put on offer allows us to pass on the saving (and more) in a cost effective, streamlined and efficient way and we hope all our members will take full advantage of the savings on offer."
Orange's response
"From the moment the VAT cut was announced by the Chancellor, Orange committed to ensuring that our customers received the benefit of the reduction. We immediately began work to determine the best approach for passing on the cut to customers across the three areas of our business: pay-as-you-go mobile, pay-monthly mobile and home and mobile broadband.
"Turning to our broadband customers, due to complicated and unavoidable technical difficulties we were unable to pass on the VAT cut to customers immediately (in the months of December and January). However, to demonstrate our commitment to passing on the rate we informed customers immediately that we'd pass on the funds they would've saved - which amounted to approximately 50p per customer for the period - to our global charity partner, UNICEF. We did this, donating more than £576,248 to UNICEF in January 2009.
"On 1 February 2009, the earliest possible opportunity for Orange UK, we introduced the full VAT cut for our home broadband customers. If a customer is still unhappy about the approach they're welcome to call our customer service team to discuss.
"We're confident that the changes we 've made across all three areas of the business to reflect the VAT cut demonstrate a responsible approach and have been warmly received and had a positive impact on our customers.
"At no point are we actively trying to avoid passing on the benefit of the tax reduction to our customers. In the case of pay-as-you-go customers they now get more value, and while we were initially unable to pass on the reduction to our paying broadband customers for technical reasons (instead donating the equivalent value to our corporate charity UNICEF), we've now solved the issue to ensure they too benefit from the reduction."
VAT cuts creeping back up again
By the end of March 2009, that VAT cut should have put an extra £3.8 billion back into our pockets. When the cut came into effect on 1 December 2008, prices were being cut at the till, so £9.99 suddenly became £9.78.
But since the New Year, some viewers have spotted that in stores where prices did come down after the VAT cut; they seem to be creeping back up again.
Price rise
Wendy Fordham noticed that too. She shops at Matalan and when she purchased a bathmat in January costing £5, she was given back 11p at the till to account for the VAT cut. However, when she went to buy another mat three weeks later, the price had risen back to £5.
Some of you say that prices have gone back to their old levels at other stores too. Like at Next, the high-street fashion and home ware store. Prices did initially come down there but viewers told us that some prices have recently risen again.
Both Next and Matalan say they're not being sneaky. They blame price rises on the increased costs they're now paying for stock which, effectively, has cancelled out the VAT reduction.
Not everything
To make things more confusing, when we asked some of the other big high-street names if they really had passed on the VAT cut, they told us they had, but not on everything.
Supermarket chain Asda is making reductions more selectively rather than across the board on its products which attract VAT. It has lowered the price of what it calls its "essential food and clothes items", which it says will benefit customers more.
It's the same at McDonalds. Buy a Big Mac now and it's 10p cheaper than in November. But some things on the menu haven't gone down at all. McDonalds says it's targeting price cuts on the ones customers buy more often, and that the cuts it's making are often more than the 2.5 per cent VAT reduction.
Complaints
Watchdog has also received complaints about odd ways other big companies have passed on the VAT cut.
Some members at David Lloyd gyms have told us they'd have liked to see their monthly fees reduced to account for the VAT reduction. David Lloyd says that's too complex since customers are on a large number of different price plans. So instead, it's taken five per cent off the cost of things their customers will pay extra for, like a massage or a facial.
Orange experienced technical difficulties when the VAT cut was announced and so couldn't pass on the savings to its broadband customers until February. When it did work out how to do it, it didn't backdate the £500,000 savings customers would've made. It gave the money to its charity instead. That's a generous offer, but some customers claim they should've been given that choice instead.
Matalan's response
"Matalan has been passing on the 2.5 per cent VAT reduction to its customers since the reduction came into effect on 1 December 2008. Matalan initially passed this directly onto its customers at the till point when customers paid for their goods. Now the new Spring ranges have been launched across the business, Matalan stopped this as it's incorporated the 2.5 per cent reduction into its prices.
"While the rate of VAT reduced by 2.5 per cent from 17.5 per cent to 15 per cent, this did't mean that prices decreased by 2.5 per cent. Matalan is required by law to charge VAT inclusive prices; this means that the price customers see in store includes the tax the government is charging customers.
"The bathmat in question that has a £5 price ticket, for example, is really a bathmat priced at £4.26 on which the Government charges a customer 74p of tax. Reducing the tax rate by 2.5 per cent only reduces the tax part of the price on the price ticket: the £5 bathmat decreased to £4.89 because the government is now charging 63p in tax instead of 74p.
"Matalan's new spring ranges have been launched which have incorporated the VAT reduction into the ticket prices. However, cost prices have changed in the past few months and many have increased.
"As a result of Government policy, the pound has been significantly devalued versus the dollar by as much as 30 per cent, which has resulted in a significant increase in costs. Matalan decided that it would not pass on the full cost price increases to its customers, but as in many cases those increases significantly exceeded the small reductions in prices caused by reducing VAT.
"Even after Matalan absorbed some of the cost price increase, some products have ended up being at the same price as before the VAT reduction, as was the case with this bathmat in question that is now priced £5.
"Matalan assures its customers that it has passed on the change in rate of VAT and remains committed to absorbing as much cost pressure as possible to deliver fantastic value for our customers."
Next's response
"When the VAT reduction was introduced by the Government on 1 December, we took the decision not to re-price all of our products to reflect the decrease, particularly as many of our products would not be continued into the new season, and so an adjustment to the value of the VAT decrease was applied at the till point from 1 December until close of business on 24 December.
"Our sale prices were not calculated until after the Government announced the change to the VAT rate and we were therefore able to incorporate the new rate into our sale prices, which are all at least 50 per cent lower than the original selling price.
"The beginning of our new season is a point at which we'd commonly review the prices of any items being carried forward from the previous season, and when doing so we have had to take into consideration the reduction in value of sterling against both the euro and the US dollar, which has meant that our cost prices have increased. Those increases in costs are therefore being reflected in the pricing of our products for the new season and whilst we are still passing the VAT reduction onto customers, the prices shown on the garment labels are correct and no further reductions will be applied at the till point with effect from 26 December 2008 when stores re-opened after the Christmas break. I would also advise that the increase in our costs has been higher than the value of the VAT reduction, but we're not passing the full increases on to the customer and are bearing the remainder ourselves."
Asda's repsonse
"When the Government first announced its temporary cut in VAT, we immediately applied a discount to all Asda and George products that were liable to VAT, at the point of purchase.
"Now we've had time to calculate the benefits of this reduction to our customers, we have discovered that we can target the savings more effectively by investing the VAT reduction into lowering prices on essential food items (many of which are not VAT-able) and on essential clothing.
"We are passing on the equivalent of the 2.5 per cent VAT savings, in full, to our customers through these reductions and we 've found that this is the best way to use the money to stimulate the economy in the way the Government intended.
We've spoken to our customers about the changes we 've made and they tell us that they'd rather enjoy larger reductions on essential food and non-food items they have to buy week in, week out, than save a few pennies on one off items."
McDonald's response
"We've been passing on the full VAT price reduction in a way that we consider is of most value to our customers by concentrating on a range of menu items that are popular with all of our customers. With our prices being relatively low we felt it was better to cut the price of our most popular menu items rather than passing on a penny here and a penny there. This way our customers will have had a more meaningful reduction - for example 10p off our Big Mac.
"We are a franchised business, franchisees set their own prices and therefore prices can vary from restaurant to restaurant. We did increase prices on a handful of occasions in 2008 because of the rampant increase in food costs that we were subjected to, just like the grocery market. Overall we kept 2008 price increases below inflation in order to help our customers as much as we could. VAT is a separate issue and we did pass the cut through to our customers from 1st December."
David Lloyd's response
"Following the Government's 2.5 per cent VAT reduction, David Lloyd Leisure has introduced a 2.5 discount on all products which are sold by the Company in its clubs for the whole of 2009 - and has, for the foreseeable future, doubled this discount to five per cent. This discount applies to:
- Personal training sessions
- Swimming courses and classes
- Tennis courses and classes
- Weight management and other studio classes
- Children's camps and parties
- Food and beverages
- Spa products and therapies where they are provided directly by David Lloyd
"We've not applied the cut in VAT directly to membership fees, as such changes to our systems are complex in nature, particularly taking account of the variety of ways in which our members pay their fees. Such a step would, for example, require small refunds to those who've already paid annually or quarterly in advance, the price reduction would also need to be adjusted to reflect the element of our membership fees on which VAT is not in any event payable and there would be administratively complex changes to direct debits for those paying monthly.
"The VAT reduction is a short-term Government measure in response to the current economic challenges and we feel that the range of incentives and discounts that we've put on offer allows us to pass on the saving (and more) in a cost effective, streamlined and efficient way and we hope all our members will take full advantage of the savings on offer."
Orange's response
"From the moment the VAT cut was announced by the Chancellor, Orange committed to ensuring that our customers received the benefit of the reduction. We immediately began work to determine the best approach for passing on the cut to customers across the three areas of our business: pay-as-you-go mobile, pay-monthly mobile and home and mobile broadband.
"Turning to our broadband customers, due to complicated and unavoidable technical difficulties we were unable to pass on the VAT cut to customers immediately (in the months of December and January). However, to demonstrate our commitment to passing on the rate we informed customers immediately that we'd pass on the funds they would've saved - which amounted to approximately 50p per customer for the period - to our global charity partner, UNICEF. We did this, donating more than £576,248 to UNICEF in January 2009.
"On 1 February 2009, the earliest possible opportunity for Orange UK, we introduced the full VAT cut for our home broadband customers. If a customer is still unhappy about the approach they're welcome to call our customer service team to discuss.
"We're confident that the changes we 've made across all three areas of the business to reflect the VAT cut demonstrate a responsible approach and have been warmly received and had a positive impact on our customers.
"At no point are we actively trying to avoid passing on the benefit of the tax reduction to our customers. In the case of pay-as-you-go customers they now get more value, and while we were initially unable to pass on the reduction to our paying broadband customers for technical reasons (instead donating the equivalent value to our corporate charity UNICEF), we've now solved the issue to ensure they too benefit from the reduction."
VAT cuts creeping back up again