Right, I'm only going to explain this once, so please listen carefully.
The UK Government has reduced VAT by 2.5%. So how much of a saving does this represent?
Let us suppose, for ease of calculation, that an item cost £100 on Friday.
Now, we wish to determine how much it will cost today, having had VAT reduced by 2.5%.
Many people have supposed that it will now cost £97.50 - in other words, 2.5% of £100 is £2.50, so you pay £2.50 less.
But this is not correct, because it corresponds to a price reduction of 2.5%, not a VAT reduction of 2.5%.
Instead, we must calculate how much VAT is currently being paid on the £100 item, and then reduce that, and recalculate the total.
£100 = full price
= cost of item + 17.5% of cost of item
= 117.5% of cost of item (because 'cost of item' = '100% of cost of item')
cost of item = £(100/117.5)*100
So, if an item cost £100 on Friday, then that price was made up of £85.11 for the item, plus £14.89 for VAT.
However, the VAT is now 15%, instead of 17.5%. This means that the total cost of the item is now:
total cost of item = cost of item + 15% of cost of item
= £85.11 + (£85.11*15)/100
= £85.11 + £12.77
And thus we see that the saving is, in fact £2.12, and not £2.50 as has been proposed.