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The planned rise in VAT is the "wrong tax, at the wrong time", Labour leader Ed Miliband has warned.

Speaking ahead of Tuesday's VAT increase from 17.5% to 20%, Mr Miliband claimed it would cost the average family £7.50 a week.

He said this would hit living standards, small businesses and jobs.

But Chancellor George Osborne said the VAT increase was necessary, as the coalition was dealing with Labour's "record debts".

The government hopes the VAT increase will raise £13bn a year to tackle Britain's defecit and will not risk tipping the economy into a fresh downturn as Labour has claimed.

The Centre for Retail Research has predicted that retail sales will decline by about £2.2bn in the first quarter of this year as a result of the change.

Mr Miliband delivered his VAT warning during a visit to the constituency of Oldham East and Saddleworth, where a by-election is to take place on 13 January.

He said the sales tax rise on most goods and services would hinder economic growth, cost thousands of jobs and make it even harder for families to make ends meet when they were already feeling squeezed.

"Today we start to see the Tory-led agenda move from Downing Street to your street," Mr Miliband warned.

"At midnight VAT goes up, hitting people's living standards, small businesses and jobs.

"The VAT rise is the most visible example of what we mean when we say the government is going too far and too fast, because it's clear that it will slow growth and hit jobs."

The Labour leader said the average family would have to find an extra £7.50 "each and every week", adding up to an extra £389 a year.

Mr Miliband added that the figures had been taken from a Liberal Democrat poster from May's general election campaign, arguing that this highlighted the "broken promises" made by Deputy Prime Minister Nick Clegg.

While the Oldham East and Saddleworth seat is seen as a three-way contest, Mr Miliband said there was "only a two-way fight for the direction of the country", with the Lib Dems in coalition with the Tories.

Mr Miliband rejected claims from some Labour figures that he is not making a big enough impact as Labour leader, telling the ³ÉÈË¿ìÊÖ News channel he wanted to "beyond Westminster concerns" and address the issues which were important to voters.

He said the coalition's cuts to education funding, allied to the VAT rise, would be especially "damaging" to young people and that he would campaign to protect their future.

However, Mr Osborne said: "Labour left Britain with record debts that people know we have to deal with to avoid an economic crisis. VAT is a powerful weapon to tackle debt and if we don't use it then the spending cuts would be over £13bn bigger.

"When Labour was in government they accepted this, which is why [former Chancellor] Alistair Darling says he wanted to put up VAT. Now Labour is in opposition, Ed Miliband has shown weak leadership by jumping on the bandwagon of opportunism."

The Lib Dems are stepping up their campaign in Oldham East and Saddleworth this week, with six ministers visiting, including Mr Clegg for the second time.

The party's candidate, Elwyn Watkins, lost the seat by only 103 votes last May, but the result was declared void by an election court which found winning Labour candidate Phil Woolas had lied about him in campaign literature.

³ÉÈË¿ìÊÖ political correspondent Laura Kuenssberg said the new political year had started on familiar ground, with the coalition government and Labour locked in an argument over the economy. She said their policies would be tested at the by-election.

Meanwhile, the British Retail Consortium says the looming VAT rise had given a "modest boost" to sales of "big-ticket" goods in December and retailers were discounting to make up for missed sales during the snow.

"That may mean the impact of the VAT rise is lost among discounts, but ultimately retailers can't absorb the cost indefinitely," said spokesman Richard Lim.

"It will push inflation up and, along with National Insurance rises and public sector job losses, harm sales as the year continues.

"But, we do accept the VAT rise, with substantial public spending cuts, is necessary as part of the government's package to tackle the deficit."

But Bob Crow, general secretary of the RMT transport union, said: "The VAT hike will have a massive and immediate impact on standards of living as prices are marked up by an extra 2.5% from midnight and RMT will be ensuring in pay negotiations that our members are not forced to take the hit from this ConDem raid on the working class.

"The VAT increase, which will continue to fuel inflation, will raise the bar in pay negotiations this year as we fight to defend our members' standards of living."