Alistair Darling will reject a request from Britain’s biggest retailers to delay a 2.5 per cent tax rise and is insistent that the economy is weaned off stimulus measures as soon as possible. Value added tax, levied on most goods and services, is due to rise from 15 per cent to 17.5 per cent at midnight on New Year’s Eve. The rise marks the end of a 13-month temporary tax reduction intended to boost consumer demand as the economy sank into recession.

Retailers have said that the timing of the tax rise will cause huge disruption and have urged Mr Darling to delay it by a month. A Treasury insider said that retailers had already had the benefit of the lower VAT rate and that it would cost the Government about £100 million in lost tax if it delayed the rise.

He added that while the Treasury was sympathetic to claims that the timing would mean extra costs for retailers, Mr Darling insists that business and the economy return to an environment where they are not propped up by fiscal stimulus measures and bailouts.

Justin King, chief executive of J Sainsbury, said: “We have been clear it is a bad day to do it, in fact there probably is not a worse day of the year from a retailer’s point of view. It will raise costs, because a lot of work will have to be done on overtime.” He urged the Government to find a more “practical, low-cost” date to raise the rate.

This week, Sir Stuart Rose, the executive chairman of Marks & Spencer, said: “Increasing VAT on New Year’s Eve is an insane time. If the Government had any sense, they would delay it for a month . . . The tax rise is at the worst possible time, in the middle of the sales.”

Retailers have complained that they will need to recalibrate their pricing models and tills to include the higher VAT rate. There are fears that it will also knock post-Christmas sales and advertising out of kilter. It is feared that shoppers will be reluctant to buy furniture and electrical items — typically on sale after Christmas — once they become aware of the 2.5 per cent tax rise on New Year’s Eve.

Christmas holiday trading accounts for a sixth of all retail sales in the UK. Last year shoppers spent £37 billion on the high street in December. The tax cut, from December 2008, will cost the Treasury about £12.4 billion over the period of the reduction.