Retailers in Sussex fear any rise in VAT will have a devastating impact on their ability to survive the economic downturn.

Most analysts believe the tax could be increased from 17.5% to 20% in next month’s emergency Budget as the new Government tries to slash the UK’s massive spending deficit.

When quizzed on the subject at the weekend, Prime Minister David Cameron refused to rule out a rise in VAT, telling the BBC: “You’ll have to wait for the first Budget.”

According to a report by price comparison website Kelkoo, a rise in VAT to 20% would cost each household in the country £425.

Chancellor George Osbourne may announce the increase in his emergency Budget on June 22, although he may choose to phase it in during the next few years.

Either way, retailers believe that Brighton and Hove’s independent sector will be hit harder than national chains because they do not have the buying power to absorb the increase.

Traders are also concerned it could lead to more homeowners opting to have work done “off the books”.

Labour cut VAT during the recession as an emergency measure, but it returned to 17.5% in the new year.

Hove town centre manager Gavin Stewart said: “January’s VAT increase was curtailed by retailers drastically discounting their products, thereby managing to not pass on the rise immediately.

“This tactic may not be so easy over the coming months, with many retailers already feeling the strain and a noticeably quieter high street.”

Gavin Atherton, owner of Pure South in The Lanes, Brighton, which sells handmade African art, crafts and collectables, agreed footfall had been down in recent months, especially on weekdays.

He believes an increase in VAT is “inevitable” and that most small shops will be forced to pass it on to customers.

He said: “Traders are struggling to make money as it is. They are just about able to pay their bills.”

Stuart Wilkie, joint owner of Charlie Barley children’s clothes shop and spokesman for The Lanes Business Network, said: “Any rise in VAT will have to be passed on to the consumer because the recession has meant retailers have been in decline for a few years.”

Mr Wilkie is worried that children’s clothes may become liable for VAT and added that a rise could cost him sales online.

He said: “I get a lot of overseas purchases from places like Scandinavia because their sales taxes are so high.

“Even if a product is made in Denmark, for example, it is cheaper for a Dane to buy it from our website and for us to send it to them.”

There have also been suggestions that VAT would be applied to food, which could prove disastrous for restaurateurs.

Sue Addis, who owns Donatello and three other restaurants in Brighton, said: “It will have a huge impact because everyone is struggling to keep their prices down.

“Even if VAT doesn’t apply to food, my costs are increasing in every part of the supply chain. It could push restaurants out of business because it is coming on top of so much else.”

Andy Lang, managing director of Languard Alarms, based in Brighton, said: “A rise could be more of a problem for plumbers, electricians and decorators who are VAT registered.

“If they quote £1,000 plus VAT for a job, then the customer could be tempted to use someone who is not VAT registered to save themselves a few pounds.”

Tony Mernagh, executive director of the Brighton and Hove Economic Forum, said he “would put money on” a VAT rise in the next Budget.

He added: “It might not come in until next year and it might be phased in but the numbers are too big and the debt too great for it not to happen.

“National chains will absorb some of it, but independents will not be able to.”