A hike in VAT to 20% is expected to be among the first moves by the new coalition government as it bids to address the country’s record deficit.
An increase from the current level of 17.5% could take place within months, experts predict, although the move is likely to be restricted to non-food.
A BBC poll of economists advising the Treasury found that 24 out of 29 expected to see a rise in VAT shortly.
Sainsbury’s chief executive Justin King accepted that an increase was likely, but urged the government to avoid the chaos of this year’s hike, which took effect on 1 January.
The Labour government had previously cut VAT to 15% in a bid to stimulate consumer spending.
“A VAT rise to 20% is clearly on the Government's mind,” King said, as he announced Sainsbury’s full-year results.
“What we would say is we need to know in good time and there needs to be sensible timing – and not in our key trading periods such as the run-up to and in the aftermath of Christmas.”
FPB hails Cameron-Clegg coalition deal (12 May 2010)
January sales ‘awful’ due to weather and VAT (9 February 2010)
No VAT reprieve for retailers in pre-Budget report (9 December 2009)