Small business lobbyists are calling on Chancellor George Osborne to review the 2.5 per cent hike in VAT once the UK budget deficit is back under control.

From today the top rate of VAT goes up to 20 per cent. Retail analysts have warned that the real impact of this is likely to be price rises of between five and eight per cent as shops round up prices.

The Federation of Small Businesses said that 71 per cent of members surveyed believe the rise will be bad for their business, 45 per cent predict a fall in turnover as a result.

The FSB called for the VAT rate to be reviewed when the budget deficit is substantially reduced, but George Osborne has already signalled the increase is likely to be permanent.

It has also suggested a rise in the VAT threshold above which firms must pay the tax from £70,000 per year to £90,000.

Mobile phone subscribers have most likely already received a text message from their network warning of the coming price rise.

Price hikes for big ticket electrical items like TVs and laptops will be most noticeable - although January sales discounts might hide the rises for the next few weeks.

Some retailers reported a mini-surge in business over the weekend caused by people pushing forward their spending in order to avoid the rise. ®