VAT was originally introduced as a tax on luxury items but soon ended up as a tax on all items that are deemed (by the government) to be non essential. Basic foodstuffs (for example) are exempt. Children's clothes used to be as well but I think are now included (I'm not sure on that one - there was quite a furore when the government announced they wanted to introduce it).
It's currently running at 20% so getting any sort of discount that means you're not paying VAT is a decent saving.
With the current economic climate some shops are offering discounts (with the slogan - we pay the VAT for you) to get people through the doors and buying. The press are also offering regular money saving tips and advising that it's always worth asking for a discount (for my OH it's standard practice - I get a bit embarrassed about it all). I'm guessing this guy works on some sort of commission basis and a cut in price would mean reduced pay.
