The 14.3% VAT increase

Just how much is today’s increase in VAT? Depending on what exactly you’re trying to measure, you could end up with one of three figures.

A lot of the media, from the Star to the BBC, have reported today’s change as a 2.5% increase in the rate. It’s very easy to see how they got there – VAT is increasing from 17.5% to 20% – but it’s wrong.

It’s wrong because it makes the simple (and widespread) mistake of confusing percentages with percentage points. Basically, a percentage is a share of the whole, while percentage points are the difference between two different percentages.

For example, if VAT were increasing by 2.5% from its old level of 17.5%, it would be going up to 17.9%. That’s 0.4 percentage points. But instead it’s going from 17.5% to 20%, a 2.5 percentage point difference but a 14.3% increase.

Yes, saying percentage points instead of just a % symbol is a bit ungainly, and takes up valuable headline space. But it’s correct, dammit, and surely that’s what journalism should be striving for.

And the interesting thing is that for all it’s used the percentage point increase doesn’t actually show what most people care about: how much more they’ll be paying.

Although it’s tempting to think so, it’s not the 2.5 percentage points extra that’s going on VAT. Yesterday, the price of an item subject to full VAT was calculated by taking its value and adding 17.5% of that value on again, making 117.5%. But today that’s gone up to 120%.

That 2.5 percentage point increase is 2.1% of the price of an item: (2.5/117.5) x 100. That’s the percentage increase in the price of something with full VAT (although prices could actually increase by more).

So there are three possible ways of explaining the VAT increase: 14.3% of the old level of VAT, 2.5 percentage points, or 2.1% of prices before the rise.

This isn’t exactly a data story, but it’s one that highlights the lack of understanding many journalists have of percentages and how to use them. The 2.1% increase in price is probably the most relevant for people reading the news, but it’s taken a back seat to the notorious “2.5% rise”.

And it’s a mistake that can easily come up in data stories. Imagine a story that compared, say, percentages of people on Jobseekers’ Allowance in different areas of the UK. In one area it could be 20%, in another 28% – an 8 percentage point difference, but also a 40% difference.

Knowing these terms and using them properly increases the audience’s understanding of the subject and avoids an unnecessary muddle. It’s not only been the journalists – politicians do it too. But it’s the journalists with the explicit job of explaining things, and the last few days have shown there’s a way to go yet.

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