If the Chancellor concentrates on tax increases rather than public spending cuts in next month’s Budget, the country runs the risk of returning to recession, warn retail chiefs.

“The key challenge for the Government in the Budget is to outline a credible plan for addressing the fiscal deficit without precipitating a double-dip recession,” said the British Retail Consortium (BRC) in its Budget submission.

BRC director-general Stephen Robertson (pictured) said: “The size of the country’s deficit means action must be taken. To nurture our fledgling recovery, the main tool for dealing with the deficit has to be cutting non-vital public sector spending.”

He admitted that some tax hikes might be inevitable, but the Government should not rely on them to reduce borrowing. “The increase would have to be so large that customers’ ability to spend would be wrecked.”