YATELEY, England - Last week, British Chancellor of the Exchequer George Osborne hiked the country??s VAT tax to 20 percent ?" a 2.5 percent jump ?" to lower the nation??s deficit, Harpers Wine and Spirit reports. The new rate takes effect Jan. 4, 2011.

However, the Association of Convenience Stores fears that small, local shops will be hit the hardest, said James Lowman, CEO of the Association of Convenience Stores.

"The much expected rise in VAT may be the least bad option for increasing tax revenue but it does present a risk to local shops," he said. "We warned the chancellor not to implement the increase in VAT immediately as this would not allow retailers enough time to change prices on thousands of products."

Also weighing in with the same concerns, the Scottish Grocers?? Federation said smaller, single stores will have less of a competitive edge because those stores will be less able to simply absorb the VAT increase.

"Usually small retailers will attempt to absorb any increase in VAT to ensure customer retention. However, this large increase in VAT means this will only be an option for the largest retailers," said John Drummond, the grocer group??s chief executive.

Retailers should appreciate that the VAT hike will take place after the crucial holiday shopping time, said Richard Lowe, who leads retail & wholesale for Barclays Corporate. "Bringing in the change on Jan. 4 will also hopefully help stimulate sales between now and then as shoppers bring planned big-ticket purchases forward before the change," he said.