Chancellor George Osbourne pledged to support businesses in his Emergency Budget speech today, but his announcement that VAT will be increased to 20% will prove costly for retailers.
VAT is to be increased to 20% from January 4, generating £13bn extra revenue by the end of parliament, said Mr Osbourne. Food, newspapers, books and children's clothing will remain exempt.

In a statement from the BRC, published shortly after the Budget announcement, director general Stephen Robertson said that while the retailers' organisation accepts the Chancellor has "tough choices to make", increasing VAT will hit jobs, consumer spending and economic growth.

He also added that implementation will be a key concern for retailers. "Changing computer systems and shelf prices on tens of thousands of products is a huge, costly exercise for retailers," he said. "The start date, in the middle of the busy and crucial post-Christmas sales period, will be difficult but retailers would rather have more notice than less. Six months to prepare is better than the rise coming in this summer. Retailers will work hard to implement the increase smoothly but there must be a light touch to enforcement at the time of introduction."

Other Budget announcements will be welcomed by retailers, however, including raising the National Insurance threshold to 21% in April 2011, meaning the number of employees for whom employers pay no NICs will rise by 650,000.

Mr Osbourne also announced that anyone who sets up a new business outside London, the south-east and east of England will be exempt from £5,000 of National Insurance contributions for each of the first 10 employees they hire.

Corporation tax will be cut by 1% per year for four years, bringing it down to 24% in 2014, which will give the UK the lowest rate of corporation tax in the G7 and the fifth lowest rate in the G20. Small companies' corporation tax will be cut to 20%, benefiting 850,000 businesses.

Mr Robertson commented: "Lowering corporation tax will support private sector investment and entrepreneurship. It also sends a positive message to the rest of the world that the UK has a competitive tax system which makes it a good place in which to do business."

The Enterprise Finance Guarantee (EFG) facility, which supports lending to viable small businesses unable to access a normal commercial loan, is being increased by £200m to support additional lending of up to £700m for small businesses until March 31, 2011.

Commenting on the announcement, Kingfisher ceo Ian Cheshire said: "It looks likes this budget 'does what it says on the tin'. It addresses the deficit more through spending cuts than tax increases. On VAT, retailers will be relieved that they have been given a sensible timescale to plan and implement the change."