Retailers urged the Government not to raise VAT or extend it to currently exempt items, such as food, in this month's emergency Budget.
The British Retail Consortium (BRC) fears that raising VAT from 17.5 per cent to 20 per cent would cost 163,000 jobs and reduce consumer spending by £3.6bn over four years.
In its Budget submission published today, Stephen Robertson, the BRC's director-general, said: "VAT shouldn't be increased as it would have negative impacts on retailing and the wider economy. Zero-rated items, such as food, books and children's clothing, shouldn't have VAT applied to them as it would hit the most vulnerable in society the hardest."
Many retailers, including the fashion chain New Look, are resigned to a rise in VAT, but hope its implementation will be delayed until next year. Furthermore, they have demanded that the Conservative-Liberal Democrat coalition gives them sufficient notice to carry out the huge administrative task, including tens of thousands of price changes for the big chains.
The BRC said it supports the Government's approach to favour cuts in public spending over tax rises to trim the huge deficit, as well as the coalition's aim of seeking an 80:20 split in public cuts relative to tax increases. However, Mr Robertson warned the Government against being too hasty in making cuts. He said: "The response mustn't harm the fragile recovery. It's the right approach to focus on public spending cuts, rather than tax increases."
The retail sector accounts for one third of UK consumer spending and employs three million workers.