If/when VAT does eventually go up then in theory, for the sellers to recognise the same revenue, they need to increase retail prices (e.g. if they sell something for £117.50 rrp and VAT goes up to 20% then they need to re-price at £120 rrp in order to recognise the same £100 revenue on their books). This is why I think it is "highly likely" that if/when a VAT increase is implemented (again for emphasis, "implemented" not just "announced") the prices will go up. The only way they won't is if the sellers decide to absorb the cost themselves so, in the example above, keep the price at £117.50 but need to make the 20% VAT payment to HMRC so now only bank just under £97.92 themselves. This is the point where we might get an idea of how generous a margin there is in the channel on the iPhone 4.
- Julian