By Claire West

Financial solutions company Think Money advises consumers to take a careful look at their finances following the VAT increase to 20%, commenting that some people may need to adjust their budgets to accommodate higher costs.

But the company added that most people are unlikely to be affected significantly, with only small price rises expected on most items.

The Government has been criticised by some experts for increasing VAT, with many people arguing that the poor will be hit the hardest. Meanwhile, the Centre for Retail Research has suggested that retail sales could drop by
around £2.2bn in the first quarter of 2011 as a result of the rise.

An expert at Think Money commented:

"There has been a lot of concern amongst consumers and in the media regarding the VAT rise, and it's clear that some households will be affected more than others.

"For this reason, it's a good idea to look at your financial plans for the future and assess how the VAT rise could affect you. In many cases, the impact will be small, but it's important to fully evaluate your situation.

"However, we should emphasise that the increase in most people's costs shouldn't be that significant. Relative to spending, most people's outgoings should only rise by a small percentage.

"To put this in perspective, a household previously spending £500 a month on goods and services that carry VAT will only pay £10 more now. However, this obviously varies depending on which items you buy - so while a chocolate bar might only increase by 1p, a new car could well cost several
hundred pounds more.

"Those most likely to struggle are those who are already struggling with their finances - and regardless of VAT, they should seek expert help as soon as they can. People with problem debts may be particularly concerned, but there are a number of debt solutions available that could help to make those debts manageable again, such as a debt management plan or an IVA.

"But in many cases, something as simple as putting together a budget or cutting out a few unnecessary expenses will be enough to help your finances stay in order."