Broadband VAT cut 'will hinge on product pricing'

Whether or not yesterday's VAT cut will affect broadband prices will "hinge on how a provider prices its products", according to an industry commentator.

Andrew Ferguson, from thinkbroadband.com, explained that the temporary cut, to 15 from 17.5 per cent, would last 13 months and would take 50p of a £20 broadband subscription each month.

He said that if the chancellor of the exchequer had announced a VAT rise to 20 per cent then consumers could be "sure" that broadband prices would have gone up.

However, with the cut, it was "likely" that providers will "take their cues" on passing on the reduction from other retailers.

He said: "Those which list and do all their budgeting based on a plus VAT basis will most likely simply pass the saving on.

"Those that only market at the consumer sector where VAT is inclusive and hardly warrants a mention in the pricing are likely to retain the 2.5 per cent reduction in VAT and either use it to offset other rises in costs, or maybe increase usage allowances slightly."

The Conservative party has announced that it wants a debate on the proposals in yesterday's pre-Budget report.