SMALL retailers face a tough year in the wake of the VAT hike, traders say.

Many larger stores were bullish in the wake of the new 20 per cent rate, which came into force last Tuesday.

But small and independent shops are likely to face a tougher battle as they are faced with a choice of either absorbing the 2.5 per cent rise or putting prices up and risk losing trade.

Phil Ainsworth, a jeweller in Darwen Street, Blackburn, and a member of the town centre partnership, said: “We have decided that we are going to absorb the rise in the short-term, possibly until April.

“After that we will chat with our suppliers and see what we can do.

“My big concern is that because food and petrol are going up, people will cut down on the big purchases like jewellery and other things.

“Major retailers may find it easy to absorb the rise but for smaller shops it is really difficult.”

Christine Barker, from the Colne Bookshop in Market Street, said she faced a similar situation.

Although VAT is not charged on books, other items in the store, such as greetings cards and CDs, are liable for the new 20 per cent rate.

Mrs Barker said: “We have discussed it and we will be passing on the VAT rise on some of the items but leaving it on others, for example the cards that are already £1.99.

“I think a lot of smaller retailers will decide to absorb the rise but the problem is that it really hits the margins.

“The majority of them will probably make the changes immediately because they cannot afford not to.”

Last week, Loraine Jones, the boss of the Mall shopping centre in Blackburn, and Jon Grace, from Motorpoint car supermarket in Burnley, said most retailers would absorb the extra 2.5 per cent VAT.

Mrs Jones said the hike would be ‘unnoticed’ by most shoppers.

However, Blackburn MP Jack Straw branded the VAT rise ‘regressive’.