Car prices increase by more than VAT rate

According to CAP data, the majority of European manufacturers have increased prices in 2011 by more than the 2.5 per cent increase in VAT.

However, Japanese and Korean manufacturers have only increased prices by an average of £10 over the VAT increase.

This is compared to an average £66.31 increase in UK car prices after the VAT rise, meaning Asian manufacturers such as Kia and Mazda now offer some of the best value cars on the market today.

The new rate of VAT moved from 17.5 per cent to 20 per cent from 2011. With the VAT rate included, the average increase in new car prices in the UK is closer to £80.

CAP New Vehicle Data Manager, David Saville, said: "Historically, tax-driven changes to car manufacturer price lists have often been used as an opportunity by manufacturers to realign their ranges and push through additional price increases."

"The latest change to 20% VAT in January was no exception."

In total nearly 3,500 out of 5,000 models sampled in the UK increased their prices by an average of £142.74, with only a third decreasing their prices for 2011.

However, some manufacturers are offering deals on cars in 2011. For example, certain Renault cars are discounted for the duration of January.

Meanwhile, Ford has frozen prices on its bottom-end Fiesta models and Ka city cars for the new year, but prices of other models have been increased for 2011 to take in the new level of VAT.