Raising the rate at which VAT is charged to 20 per cent would cost a typical household more than £400 a year, research has claimed.
Chancellor George Osborne is widely expected to announce that VAT will increase from 17.5 per cent to 20 per cent in Tuesday's Budget.
The move would bring the UK more in line with the rest of Europe, while it would raise an additional £11.4 billion for the Treasury, bringing the total tax take from VAT to £91.29 billion, according to comparison website Kelkoo.
But it would cost the typical household an average of £1.16 a day or £425 a year, and reduce their spending power by around 1.25 per cent a year.
The move would add about 2.5p to a litre of petrol and 7p to a pint of lager, while big ticket items, such as a Ford Focus, which would previously have sold for £17,945, would be £383 more expensive.
Any increase in VAT would also hit those on lower incomes the hardest, as they spend a higher proportion of their money on indirect taxes.
During the past year the poorest fifth of households spent an average of 12 per cent of their disposable income on VAT, compared with just 5.9 per cent for the richest fifth of households.
The UK currently has the lowest standard rate of VAT of any major EU state, and it is the only one to have a 0% rate on food.
