Credit card fees to be banned from January

Extra charges for card payments are to be banned, the government has said, saving UK consumers hundreds of millions of pounds.

From next January, companies such as airlines, corner shops and even government agencies will no longer be able to add to their prices at the checkout.

Stephen Barclay, economic secretary to the Treasury, told the Daily Mirror: "Rip-off charges have no place in a modern Britain and that's why card charging in Britain is about to come to an end.

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"This is about fairness and transparency and so from next year, there will be no more nasty surprises for people at the checkout just for using a card."

Few figures are available on how much these charges cost per annum, but the government's "best estimate" was £473m in 2010.

This move could see the government itself lose out. The Driver and Vehicle Licensing Agency adds £2.50 to vehicle tax payments by credit card. According to The Guardian, the agency's data has shown it collects more than £8.5m a year this way.

HMRC also charges between 0.374 and 2.406 per cent for paying by credit card, depending on whether it is a personal or corporate card, leading financial journalist Evan Davies to ask:

The legislation comes after the EU changed its rules on consumer-facing debit and credit card fees, which can be as high as 20 per cent, the Daily Telegraph reports.

The EU directive bans surcharges on Visa and Mastercard payments but the UK ban goes further and also applies to American Express, Paypal and Apple Pay.

However, some analysts expect companies to raise prices to compensate for the loss in income.

Guy Anker, managing editor of Money Saving Expert, warned: "We expect some companies will raise prices for all to compensate for the loss, which could hit those who currently pay in cash or by debit card," reports the Guardian.

Cards have overtaken cash to become the UK's top payment method. For the first time ever, more than half of all retail transactions by volume were paid for by plastic, says Retail Week.