VAT rate rises from 17.5% to 20%

Business groups have warned that retailers will be hit by the increase, while opponents of the rise have said the poorest will suffer the greatest effect.

The government says the rise is necessary to help bring down the UK's high budget deficit.

Chancellor George Osborne described the decision as more "progressive" than a hike in income tax or National Insurance.

Food, children's clothing, newspapers and magazines are not subject to VAT.

Research by the Centre for Retail Research and online shopping group Kelkoo has suggested that retail sales will fall by about £2.2bn in the first three months of the year as a result of the rise in VAT.

The British Retail Consortium (BRC) has also warned that the rise, announced in the June budget, may have squeezed the traditional January sales period into a concentrated burst around the New Year.