Londoners can expect to bear the brunt of the VAT increase because much of the nation’s business and high value consumer spending is done in the capital, The Evening Standard reports.

The VAT increase from 17.5 per cent to 20 per cent came into effect at midnight yesterday, triggering price rises across the board.

However Londoners will particularly feel the pinch as prices for luxury goods rise above and beyond the VAT increase.

High street fashion prices are expected to rise as much as eight per cent higher than last year.

Luxury items such as handbags, Cuban cigars and stays in top London hotels will also be hit hard by the rise.

Charlotte Linacre, campaign manager of the TaxPayers’ Alliance, said: “If the VAT hike doesn’t affect a family’s major purchasing decisions in the coming year, this tax on treats certainly means that Londoners will have to cut back on other little luxuries.”

The VAT rise is expected to pour £13billion a year into George Osborne’s coffers.

The Chancellor insisted the VAT rise was a ‘tough but necessary step’ to deal with a record national deficit run up by the Labour government.