Britain’s biggest retailers attacked the Government last night over fears that the timing of VAT being returned to 17.5 per cent would cause huge disruption during the critical Christmas trading period, The Times has learnt.

The increase, from 15 per cent, will come into force at midnight on New Year’s Eve, and a number of important retailers have urged the Government to postpone the tax rise by a month, until the high street is quieter.

Sir Stuart Rose, the executive chairman of Marks & Spencer, said last night: “Increasing VAT on New Year’s Eve is an insane time. If the Government had any sense, they would delay it for a month. There needs to be a conversation with us about the timing of this. The tax rise is at the worst possible time — right in the middle of the sales period.

“The key question is what it’ll do for sales, because the cost to customers will rise at a really important trading time. And there’s all the admin.”

A Treasury spokesman said yesterday that the policy to return VAT was unchanged, and exactly as detailed in the Pre-Budget Report last November: VAT will rise as the short-term tax cut devised to stimulate the economy and introduced in December 2008 expires.

But the timing of the rise in tax, which is levied on most goods and services but not on food, is expected to spark chaos for retailers at their busiest time of year.

They will need to recalibrate their pricing models and tills, and 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 increase on New Year’s Eve.

The British Retail Consortium (BRC), the trade body, is also urging the Treasury to delay the VAT increase. Richard Dodd, a BRC spokesman, said: “The real impact of this is for retailers who sell big-ticket items. If you were thinking of buying a new television or recarpeting your home, you’ll realise that you will lose a significant benefit after new year.

“It is quite a challenge to market such items earlier, before Christmas, because most people are focused on food or presents, rather than home improvements.”

He added: “We are lobbying the Government to push the date to the end of January. The timing of this tax rise is terribly distracting for retailers at their busiest time. Repricing to incorporate the new tax rate is an enormous exercise, and, as we emerge from this recession, Christmas is even more important for retailers.”

The holiday trading period accounts for about a sixth of all retail sales in the UK. Last year shoppers spent about £37 billion on the high street in December.

Although some retailers may try to absorb the tax rise themselves during the post-Christmas sales, rather than passing it on to the customer, the BRC pointed out that many retailers were still trying to recover from the decline in business suffered during the economic slowdown and could ill-afford to slice their profit margins thinner.

In December 2008 the Chancellor cut VAT from 17.5 per cent to 15 per cent to throw a financial lifeline to struggling retailers. The cut was designed to be finite and to expire on December 31, 2009.

The tax cut was generous, costing the Treasury about £1 billion a month in lost revenues, or an estimated £12.4 billion over the period of the reduction.

Economists have pointed out that when VAT was increased — with notice — in Japan and Germany, it altered shopping patterns significantly.

Draft documents found on the Treasury website indicated that there were plans to raise VAT to 18 per cent when the tax cut expired. However, at the time, the Treasury insisted that the plans were an early draft and that it had no intention of doing so.

Times Recommends

• Minister in talks with Saudis to protect creditors
• Premier Inn hits back in £29-a-room row
• Bankers hit back at 'populist' bonus supertax