PAYG best choice after VAT increases

January 18, 2011

The VAT increase introduced on 4th January 2011 from  17.5% to 20% should have affected all customers equally, whatever their network. Research suggests that the picture does not reflect this and mobile phone customers may find prices are increasing more than the rise in VAT. According to the comparison firm uSwitch the 2.5% increase in VAT has added approximately £22 per year to the UK average mobile phone bill. That doesn’t sound too bad – but some mobile phone giants are using the VAT as an opportunity to increase their charges by up to 150%.

Ernest Doku from uSwitch said, ‘These increases will be a bitter pill to swallow. The good news is that consumers could offset these price rises by reviewing their mobile usage and moving to a better deal.’

VAT is charged on every new mobile phone, pay monthly contract and PAYG airtime vouchers. VAT is also charged on all smartphone app downloads but generally excludes mobile phone insurance. Costs will rise for new mobile contract customers, and those upgrading, following increases to the cost of calls and texts being introduced at the same time as the VAT rise.

According to Billmonitor (accredited by regulator Ofcom) the average mobile user,  on a contract, has 300% more free minutes than they actually need which means they overpay by around £200 a year. While the Sunday Times – Money Section- reports that Network 3 loses its advantage of being the cheapest operator for calls and texts and is now the most expensive network overall as contract customer calls and texts rise from 12p to 30p – this makes 3 the most expensive operator overall. If you are a new 3 customer, or are upgrading to Talk and Text tariffs, you will also be charged 30p a minute to access your voicemail.

Vodafone customers fair better,  on a 24-monthly contract they will find that their monthly charge will increase minimally  from £30 a month to £30.65 but  will pay more for extras outside their plan.Vodafone appears to be targeting travellers to Europe increasing calls from 38p to 39p a minute and receiving calls from the UK from 14p to 15p a minute. O2 customers on contracts have price increases in line with the 20% VAT  – calls cost 20.4p a minute and texts now cost 12.3p. Likewise, Orange have only increased contract tariffs to VAT at 20%. Orange win the crown for offering the best deals -they have swallowed some of the additional costs on behalf of their customers- including PAYG.

PAYG deals

Most mobile networks providers have set up VAT help pages online. But a current comparison suggests:

  • Vodafone has frozen all its PAYG call, text and mobile internet charges. Visit the Vodafone website
  • O2 has increased PAYG texts from 10p t0 12p. Visit the o2 website
  • Orange has frozen its PAYG and mobile broadband prices without increasing VAT. Visit the Orange website

So what can you do if you are unhappy about your provider’s increases? Happily, PAYG customers can switch mobile networks at any point. However, note that you may need to unlock your mobile phone before it works with a different network operator’s SIM card. Billmonitor suggests that 91% of contracted users can save £216 per year by using SIM-only. Or save up to £150 a year by switching tarriffs with your current network provider. Most operators will allow you to cancel your contract if you pay for the remaining months of your deal.


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