High Street bosses are so convinced the new Government will increase VAT to 20pc that one of the UK's largest chains is already altering its prices in anticipation.
One of the UK's best-known retailers, with sales of well over £10bn, is telling its overseas suppliers to start adjusting its price tags on clothing and other products to assume a VAT level of 20pc. The goods in question will hit the shops in February of next year.
Meanwhile the impact of a VAT increase on UK households is revealed in new research by The Sunday Telegraph showing that day-to-day living costs in the average home would rise by at least £216 a year if the rate was raised from 17.5pc to 20pc.
This figure is based on the basic spending patterns of Britons' everyday lives, and would be significantly higher if one-off 'big ticket' items, such as cars, furniture or electrical items, are taken into account.
The potential impact of a VAT rise comes as experts have warned that financial plans by the coalition Government could leave some ordinary families £3,000 a year worse off.
Stephen Herring, tax partner at accountants BDO, said that a couple with two children, where one parent earned £50,000 a year and made a modest gain of £6,000 on the sale of shares or other assets, could be more than £2,000 worse off a year under expected new measures including changes to the capital gains tax (CGT) regime.
Meanwhile, Patricia Mock, tax partner at Deloitte, said that the well-trailed axing of tax credits for families earning £50,000 or above would slice a further £1,000 off the family's annual income.
The calculations have been made after careful study of the coalition agreement announced last week, which heralded a package of tax measures including the phased raising of the threshold at which income tax kicks in to £10,000.
The amount by which families will be out of pocket is bigger than previously-published estimates which did not take CGT into account.
VAT is currently at 17.5pc but economists widely assume that George Osborne, the Chancellor, will soon increase this by 2.5pc as a means of tackling the country's £167 billion deficit. The increase, which would raise £1 billion a month for the Treasury, will have an impact on the price of every product sold in shops, except for groceries, children's clothing, newspapers and books.
Last week 24 out of 28 leading economists said that they expect VAT to increase to 20pc by the end of 2011. Many believe it could be sooner, perhaps as part of the coalition government's emergency budget in the coming weeks.
Karen Robb, VAT partner at Grant Thornton, which carried out the cost-of-living research for this newspaper, described the rise as "likely".
The £216 increase predicted by Grant Thornton is based on annual spending on transport, recreation activities, petrol, restaurants, clothing, footwear, food, drink, tobacco and household bills.
Mike Warburton, a director at Grant Thornton, said that a VAT increase would be a "logical" way to help plug the deficit.
The high street retailer that is already altering its prices in anticipation of the rise asked not to be named.
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