Putting VAT back up in January could stall a recovery from recession, an economic forecaster has warned.
The end of the temporary cut - taking the tax from 15% to 17.5% - could knock around 0.7% off consumer spending, the Centre for Economics and Business Research (CEBR) said.
The cut was introduced by Chancellor Alistair Darling to spur on the ailing economy in December 2008 but critics said the move was likely to have little impact.
While lower mortgage costs were the main driver behind more resilient retail spending in 2009, the CEBR said the cut gave households an extra £300 a year in disposable income - boosting consumer spending by some £6.8 billion and adding 0.5% to UK output.
"Given other important aspects, such as ease and speed of implementation as well as its temporary nature, the VAT cut was the right measure at the right time," CEBR economist Jorg Radeke said.
But he warned: "The downside of a working VAT cut is that reversing it in January has the potential of stalling an emerging recovery."
Even if companies decide not to pass on the increase to protect consumers, this will squeeze margins at a time when profits are falling, the CEBR said.
Mr Radeke added: "All told, reversing the cut in January is likely to wipe out most of the benefits it was meant to create in the first place - expect a tough spring for retailers and other industries dependent on consumer spending."
