Chancellor Alistair Darling has confirmed the planned rise in the rate of VAT to 17.5% will go ahead on January 1.

Retailers had hoped that Darling would delay the rise by one month to avoid chaos as stores struggled to reprice their stock during the New Year period. The Assocaition of Convenience Stores (ACS) estimates the cost of the change will exceed £8million across the convenience sector industry.

The Government is expected to permit stores to sell products marked at the lower price for 28 days after the deadline, as long as they  inform customers via notices that an adjustment in price to take account of the VAT change will be made at the till.

The Chancellor announced the move during his Pre-Budget speech and said he had "no more changes to announce on VAT," a statement which appears to rule out a further rise to 20% next year, as had been predicted.

ACS chief executive James Lowman said: “The VAT changeover will be a major burden on retailers seeking the changeover of hundreds of product prices in the most busy trading period of the year and on a day when staffing is most difficult. 

"Failure to act has seriously let down thousands of retail businesses across the country."

Darling also confirmed that last year's duty rises on tobacco and alcohol would remain in place when VAT returns to the higher rate, a move Lowman described as "a tax grab that harms consumers and retailers alike."

Jeremy Beadles, Chief Executive of the Wine and Spirits trade Association added: "This means that since last year's Budget excise duty has gone up by around 20% for wine and 16% for spirits - excessive increases at a time when most families are feeling the pinch."