The 2.5% rise in VAT starts from today.
Petrol, electronic goods and cars will cost more as a result of today’s VAT hike.
VAT has risen from 17.5% to 20% as part of the government’s bid to increase its tax revenues and slash UK debt.
Chancellor George Osborne said the change, which was introduced at midnight, will be permanent and should raise an extra £13 billion a year for the British economy.
The rise means that items that cost £1 yesterday will now cost the consumer an additional 2.13p. The price of a litre of petrol will also rise by an average of 3p.
However, the retail price of some items will remain at their current level – newspapers, magazines, food and adult clothing are not subject to VAT.
Mr Osborne said: “I think it is a reasonable rate to set, given the very difficult situation we find ourselves in. The VAT rise is a tough but necessary step towards Britain’s economic recovery. If you don’t want to raise VAT, you have got to do something else. Income tax and National Insurance [increases] would have a more damaging impact on poorer people in our society”.
However, Labour leader Ed Miliband said: “When family budgets are already squeezed, now is not the time for a VAT rise to make it even harder to make ends meet”.
The change marks the second VAT rise in a year – the rate was increased to 17.5% in January last year after it was temporarily reduced to 15% for 13 months to stimulate consumer spending.