A rise in VAT to 20% would lead to 163,000 job losses and reduce consumer spending by £3.6bn over four years, according to the British Retail Consortium (BRC).
The BRC warned today that an increase in VAT from its current level of 17.5% could lead to a lower demand for goods and services as prices increase and lower margins for companies, leading to cost cutting and the axing of jobs.
The BRC said in its first year a VAT rise of 20% would reduce the deficit by £11.3bn but by the end of that first year there would be 30,000 fewer jobs in the UK, across all employment sectors. Consumer spending would be hit by £1.6bn.
BRC director general Stephen Robertson said: “For the first time we have clear, independent evidence showing VAT and NI increases will have a deep and long-lasting impact on jobs and growth.
“The budget deficit is serious. It has to be tackled but proposals must be judged against the implications for jobs and growth revealed by this new information,” he added.