Fewer people than predicted are likely to be badly stung by the VAT rise to 20 per cent, an expert forecasts.

And Tony Jackson, Director of VAT services at the Birmingham office of BTG Tax, part of the Begbies Traynor Group, says the impact on the UK's competitiveness will be limited.

Mr Jackson said the move - due to take effect on January 4 - had been portrayed as a hitting the poorest the worst because VAT is a regressive tax.

But, he pointed out, much of the ordinary person's shopping basket remains zero-rated including food, children's clothes, books and newspapers. And the Government had given an assurance this would not change for the course of the current Parliament.

There is also no VAT on housing and that meant there was no reason why rents should increase.

On top of that there had to be a question mark over whether retailers would impose the full increase, impose some of it or hold their prices while taking a hit on margins.

He said: "It will be for the retailers to call.

"It will depend on their assessment of people's ability to spend money. The economy is still very fragile, public sector cuts are coming through and many are frightened for the future of their jobs.

"This is bound to have an effect on retailers' consciousness and they will have to gauge what is possible and whether the market will stand it.

"All in all I think it is unlikely there will be a massive jump in prices on January 4."

And for those still thinking of purchasing 'luxury' products, like a new car, then they have some time to do so,budgeting accordingly, before the hike takes effect.

As for the UK's competitiveness, Mr Jackson points out that the VAT rate will only be coming into line with the European average - France is on 19.6 per cent and Ireland 21 per cent, our two closest neighbours.

"To that extent and given the need to get to grips with the budget deficit, it was an obvious thing for the Government to do," he added.

"In some ways the surprise was that the rate did not go higher still."

For more information about Begbies Traynor, please visit their website here: www.begbies-traynorgroup.com