Retailers are concerned that a rise in VAT could cause short-term chaos and long-term harm to their businesses.

Most analysts expect an increase to 20% to be announced in the June 22 emergency budget.

The increase would be the third time the rate has been changed in the past 18 months, creating work for store staff and confusion for customers.

In a submission to government this week, the Association of Convenience Stores pointed out: "Smaller retailers are likely to include a higher proportion of products pricemarked by the manufacturer, and changes that force retailers to price above these levels will have a disproportionate impact on customer buying behaviour."

"We fear that this would drive custom into larger stores which will absorb some VAT-led price increases."

Malcolm Crump of Spar Compton in Wolverhampton said that he had already cut down on pricemarked cigarettes in anticipation of an increase. "We'll have to ask customers for a higher price than that on the pack so it's best to stop stocking them now," he said. "An increase isn't going to do us any favours and it will take time to change prices to the new rate."

Bestway Group buying controller Kaiser Yousaf said that retailers would receive adequate notice of any VAT increase. "I am sure it will not happen overnight, which will give independents enough time to stock up in advance of any increase," he said.