Debt to worsen due to VAT hike?

The hike in VAT to 20 per cent comes into effect today, which may lead to some in debt finding their finances are squeezed more.

Although the tax is not levied on all goods – with items like children’s clothing, newspapers and food being zero-rated – the cost will still affect many people, who could find themselves paying more for a range of goods.

The decision to raise the rate from 17.5 per cent was announced by chancellor George Osborne in his June emergency budget, with the reasoning being that it would raise £13 billion a year, thus helping to cut the deficit.

As may be expected, the issue has become a politically contentious one, with Labour leader Ed Miliband – in Oldham for a forthcoming by-election – arguing “it is the wrong tax at the wrong time”.

He also claimed: “The squeeze designed in Downing Street will come to your street, to the High Street, to every street up and down this country.”

However, Mr Osborne has said the measure is “tough but necessary” and argued it will be better for jobs than the alternative Labour suggested, of higher national insurance contributions.

Whatever the rights and wrongs of the political debates, for those who are already facing financial challenges and wishing to be debt free,now may be a good time to make new year’s resolutions to take action.

This could include seeking an individual voluntary arrangement to deal with their own deficits, a measure that can substantially reduce monthly repayments.

By Amy White