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VAT rise means £2.2bn in lost sales, says report

Retail sales will fall by about £2.2bn in the first quarter of 2011 because of the rise in VAT, according to a report.

It says consumers will rein in their spending after the standard rate of VAT rises from 17.5% to 20% on Tuesday.

The Centre for Retail Research and Kelkoo, the online shopping group, say spending in the January sales will rise by about 1.6% to £22.5bn as consumers try to beat the rise.

But they say this will be the "last hurrah" before the VAT rise kicks in.

The rate rise affects any VAT-registered business that sells or purchases goods or services that are subject to the standard rate of VAT.

Most foodstuffs, children's clothing and books will remain zero-rated and reduced rates will remain on items such as children's car seats and supplies of domestic fuel and power.

Some business groups have called on the government to delay the increase because of the recent cold weather, which hit retailers in the normally busy run-up to Christmas.

The report predicts that consumers will spend £22.5bn in the January sales, an increase of £360m on last year.

After this, however, the report estimates that consumers will spend an average of £324 less this year as a result of the tax.

British Retail Consortium spokesman Richard Lim said the rise would harm the sector, but he accepted that it was necessary.

"[The rise] will push inflation up and, along with National Insurance rises and public sector job losses, harm sales as the year continues.

"But, we do accept that the VAT rise, with substantial public spending cuts, is necessary as part of the government's package to tackle the deficit."

However, Labour leader Ed Miliband called the planned rise the "wrong tax, at the wrong time".

He said it would cost the average family £7.50 a week.

But the Conservatives say Labour's plans for the economy would hit businesses with billions of pounds of extra costs.

BBC News

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