Proposed VAT Cut - Not 2.5%

The widely reported speculation that VAT is to be cut from 17.5% to 15% and wil ead to a 2.5% reduction in retail prices requires some adjustment. Contrary to many reports, that the VAT cut will save £2.50 for every £100 spent, the actual figure will be nearer £2.13.

The maths is as follows:

Retail price of £100. To get the pre-VAT price divide £100 by 1.175. Net price = £85.11 (£85.1064 rounded). To get the new VAT inclusive price with 15% VAT, multiply this figure by 1.15. Equals £97.87 (£97.87234 rounded). Divide this into £100 and you get a reduction of 2.13% (2.1278 rounded).