TWENTY years ago, the rate of VAT increased from 15 per cent to 17.5 per cent to help pay for the new community charge, which had replaced the hated – but more lucrative – council tax.

Today, VAT goes up from 17.5 per cent to 20 per cent – a move that is expected to boost the Treasury’s coffers by £13bn a year.

Lifting the rate of VAT is the Government’s flagship revenue-generating policy. It will affect every one of us and prove painful for families already on the breadline.

Of course, it can be argued that a tax on consumption is preferable to a tax on earnings, because it includes a measure of discretion.

But that discretionary power also brings with it grave dangers for the economy. If the rise proves a tax too far, and people cut back on their spending, then an already fragile recovery will stall.

Higher prices in the shops will also push up the rate of inflation, which is already running way ahead of the Government’s target.

The cost of living is already surging ahead of wages.

Higher heating bills were in prospect long before the December freeze and the cost of filling up a car rises nearly every week.

Factor in public spending cuts and the thousands of impending job losses they will bring and it isn’t hard to predict a difficult 2011 for many families.

We trust VAT will be reduced to 17.5 per cent as soon as possible.