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Chancellor George Osborne has defended the increase in VAT to 20 per cent from 17.5 per cent, saying it is the 'least damaging' way to deal with the nation's budget deficit. Labour has condemned the 2.5 per cent rise, which has come into force, as 'the wrong tax, at the wrong time.' Meanwhile retailers have also criticised the hike, warning that increased prices will depress consumer spending in the high streets. But the Chancellor defended the rise, announced in his emergency Budget in June 2010, as 'a powerful weapon to tackle debt' and challenged Labour to say what cuts it would make to cover the cost of scrapping it. Speaking on the radio he said: "The VAT rise is a tough but necessary step towards Britain's economic recovery and it helps deal with those debts that everyone knows we've got to deal with." Mr Osborne has previously said that the 20 per cent rate is 'not temporary' but a structural part of the tax system, leading economists to predict it will remain at least until the next general election, scheduled for 2015. This rise is the second VAT increase in a year, after Labour chancellor Alistair Darling restored the 17.5 per cent rate last January having temporarily reduced it to 15 per cent for 13 months to stimulate the economy during the recession. The change affects any VAT-registered business that sells or purchases goods or services that are subject to the standard rate. Most foodstuffs, children's clothing and books remain zero-rated and reduced rates remain on items such as children's car seats and supplies of domestic fuel and power. Online shopping group Kelkoo said...