I believe it used to be 5% before Thatcher hiked it up to 17.5% to pay for her income tax cuts. In other words she cut our taxes by around 3-4% and paid for them with a 12.5% tax on everything we buy.
Of course when I say 3-4%, if you were fortunate enough to be earning above about 50K / year the reduction in taxes was just a bit more, and closer to the 12.5% increase in VAT.. say about 20%. So all's fair in the end if you don't think about it too much and do the maths.
The idea was as simple as it was bullshit. You decide what to spend your money on, and therefore you decide whether to keep paying taxes at the old rate or spend less and be taxed less.
Unfortunately very little of life's essentials actually escaped the function creep of VAT, and therefore the bullshit that you could decide your own level of taxation should have become apparent.
But far be it for anyone to remember what was said 20 years ago. Instead we should recognise that we've had a free ride on life's essentials for too long. Luxury items only? Don't make me laugh, that idea is even older than the one that let us hike VAT, and if we can't remember the reasons for the price hike, why on earth should we remember that VAT was only supposed to be applied to life's luxuries?