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One week after the government’s VAT reduction, we examine the effect it has had on the UK broadband market.

Sky and its subsidiary UK Online announcement that it will definitely not be cutting their prices means that they, along with Virgin Media and O2, are now the sole major UK internet providers to fail to pass on the benefit of the recent VAT reduction to their customers.

UK Online confirmed it will not be passing on the 2.5 per cent cut in an e-mail to its customer base of around 30,000 people. The punitive administrative costs of implementing the change to its tariffs were given as the principal reason for the decision. The e-mail read: “Passing on the VAT reduction would create a lot of administrative work, overhauling customer billing processes, and amending direct debits and payment instructions. We've taken the decision to leave subscriptions at the current rate.” A spokesperson for the company also hinted that implementing changes would actually disadvantage its customers. “The financial saving each customer would have received - equating to approximately 32p a month - is far outweighed by the disruption these changes would cause,” she told the Guardian. The move followed UK Online’s parent company Sky announcing that it will also be retaining its current set of tariffs despite the cut. This decision comes after it recently simplified its pricing plans. Meanwhile, Virgin Media, Orange and O2 are expected to introduce a cut in line with their rivals but could not confirm their plans when a spokesperson was contacted earlier today, leaving their prices as it stands at pre-VAT reduction levels.

Upon the news of the VAT reduction last week however, a number of the major UK internet service providers acted quickly to pass on the cut – these are: Vodafone, Tiscali, BT and junior provider PlusNet. Be, meanwhile, cut prices above and beyond the reduction in an attempt to steal a march on its larger rivals.

Given how recent the tariff changes were enacted, the effect that they could have on individual ISPs’ customer bases is yet to be established. What can be said for certain, though, is that the announcements from SKY and UK Online have been given a frosty reception from consumers and public figures alike.

Mark Todd, the Labour MP for Derbyshire South, in particular questioned the notion that the move put the customers’ best interests first. He said: “What they don't say, of course, is that the company will trouser the difference.”

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