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Chancellor George Osborne has insisted that today's VAT increase from 17.5 per cent to 20 per cent is a "tough but necessary step" towards Britain's economic recovery.
Speaking to Radio 4's Today programme, he defended the decision and said that VAT was "the least damaging tax rise" available to the coalition government.
The VAT rise, announced in last year's Budget, is designed to raise £13bn a year.
The Office for Budget Responsibility watchdog has said the rise will shave around 0.3 per cent off economic output in 2011/2012.
Osborne said: "I think it is a reasonable rate to set, given the very difficult situation we find ourselves in. The VAT rise is a tough but necessary step towards Britain's economic recovery.
"If you don't want to raise VAT, you have got to do something else."
The chancellor added: "Income tax and National Insurance [increases] would have a more damaging impact on poorer people in our society."
Shadow chancellor Alan Johnson told the programme the increase is the "wrong tax at the wrong time".
He said the government had broken an election promise and said Labour favoured National Insurance rises rather than the VAT hike.
Writing in the Daily Mirror, Johnson says the increase is an "act typical of a government that cares little about the impact of their plans on ordinary working people".
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