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9 January 2011
Last updated at 05:17 ET
Prime Minister David Cameron has suggested that the rise in VAT from 17.5% to 20% is likely to be permanent.
He told the BBC's Andrew Marr Show the government was trying to deal with the "structural budget deficit" - the gap between spending and taxes.
"That is structural, that's not going to go away because of the growth, so the changes we are making have to be pretty permanent too."
He said 2011 would be "difficult" but he was "optimistic" for the future.
Labour says the increase in VAT, which came into effect on Tuesday, will cost the average family £7.50 a week.
The government hopes it will raise £13bn a year to tackle Britain's deficit. The Centre for Retail Research has predicted that retail sales will decline by about £2.2bn in the first quarter of this year as a result of the change.
In the interview Mr Cameron said the VAT rise was part of an economic policy which was predicted to see an increase in employment across the Parliament.
He said: "That is the way to judge what we are doing."
He hoped the new top rate of income tax would not be permanent because it would discourage people from working and "getting on" - and said no party wanted it to be permanent.
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He told the BBC's Andrew Marr Show the government was trying to deal with the "structural budget deficit" - the gap between spending and taxes.
"That is structural, that's not going to go away because of the growth, so the changes we are making have to be pretty permanent too."
He said 2011 would be "difficult" but he was "optimistic" for the future.
Labour says the increase in VAT, which came into effect on Tuesday, will cost the average family £7.50 a week.
The government hopes it will raise £13bn a year to tackle Britain's deficit. The Centre for Retail Research has predicted that retail sales will decline by about £2.2bn in the first quarter of this year as a result of the change.
In the interview Mr Cameron said the VAT rise was part of an economic policy which was predicted to see an increase in employment across the Parliament.
He said: "That is the way to judge what we are doing."
He hoped the new top rate of income tax would not be permanent because it would discourage people from working and "getting on" - and said no party wanted it to be permanent.
Online Business Consulting | Internet Business Consulting