Budget tax rises ‘will hit the economic recovery’ in London

Property experts warned that London's housing market recovery would be threatened if CGT, charged on buy-to-let properties and second homes, rises as expected from 18% to 40%.

The capital is a hotbed for buy-to-let investors and would be particularly hit if landlords became more cautious about expanding their residential and commercial portfolios.

Simon Rubinsohn, of the Royal Institute of Chartered Surveyors, said: "Our research indicates that an increase in the rate of CGT is likely to deter new investors from entering the buy-to-let market, at a time of acute shortage of affordable accommodation."

He also warned that a fire sale of properties by landlords looking to avoid a higher rate of CGT could "have a significant impact on the fragile improvement in sentiment in the residential sector".

High street retailers were worrying about the impact of a potential increase in VAT, which is expected to be raised from 17.5% to as much as 20%.

Although the outgoing boss of Marks & Spencer, Sir Stuart Rose, said before the election that a VAT rise was a good idea for the country as it "would give a level of certainty", the British Retail Consortium warned it would damage the sector's recovery when shoppers are nervous about job prospects and the state of their finances.

Director general Stephen Robertson said: "The sheer size of the deficit means action must be taken, but the response mustn't harm the fragile recovery.

"VAT shouldn't be increased as it would have negative impacts on retailing and the wider economy.

"Zero-rated items, such as food, books and children's clothing, shouldn't have VAT applied to them as it would hit the most vulnerable members of society the hardest.

"The best way to protect long-term growth is to halve the deficit over four years, rather than three."

The emergency Budget will set out plans to raise taxes by £10 billion while slashing £40 billion from public spending.