The 2.5 per cent VAT rise coming into effect today will cost families almost £400 a year and put 250,000 jobs at risk, Labour leader Ed Miliband warned.
Campaigning in the Oldham East and Saddleworth byelection, Mr Miliband cited a Liberal Democrat poster from last year's General Election, which warned that a "Tory VAT bombshell" would cost households 7.50 a week.
He said there were now only two choices for voters in the January 13 byelection – between the two coalition parties which both support the increase in VAT to 20 per cent and Labour, which thinks the Government is cutting spending "too far and too fast".
The rise in VAT will add to the cost of everything from a tank of petrol to a mobile phone call, a cup of coffee or a DVD, said Mr Miliband, who described it as "the wrong tax at the wrong time" for the economy and for consumers already facing rising unemployment, petrol at more than 1.20 a litre and inflation at more than three per cent.
"The squeeze starts here," said the Labour leader. "The squeeze designed in Downing Street which will come to your street, to the High Street, to every street up and down the country."
Mr Miliband said the estimate that the VAT rise would cost families 389 a year was "not my figures, but Nick Clegg's figures from the last General Election, when he went round the country saying 'Stop the Tory VAT bombshell'.
"He didn't tell us that he would be standing by and applauding as (Chancellor) George Osborne dropped the VAT bombshell."
The Labour leader said the Tory-Liberal Democrat coalition was isolated internationally in its plan to eliminate the UK's national deficit within four years.
"They are following a course that no other major industrial country is following in terms of how far and how fast they are cutting," he said.
"By taking money out of the economy, they put jobs and growth at risk. The VAT rise alone, people tell us, will cost up to 250,000 jobs up and down this country, at a time when unemployment is already rising."
Speaking alongside Labour candidate Debbie Abrahams, Mr Miliband said the Oldham East and Saddleworth byelection offered voters the opportunity "to send a message to this Government that they are getting it wrong".
The constituency was a three-way marginal in last May's poll, Labour defeating the Liberal Democrats by only 103 votes with the Tories less than 2,500 votes behind them.
But Mr Miliband said: "There are only two choices at this election. Do you support candidates who will support the VAT rise, who will support police cuts, who will support the betrayal of the people of Oldham East and Saddleworth? Or do you support Debbie Abrahams?"
The byelection, which marks the parties' first major test at the polls since the formation of the coalition, was triggered by the removal of Labour MP Phil Woolas after an election court found he had misrepresented his Liberal Democrat rival Elwyn Watkins in leaflets.
Mr Watkins is standing again for the Liberal Democrats, who are stepping up their campaign with six ministers visiting this week, including Mr Clegg for the second time. Party president Tim Farron will visit the constituency today.
Responding to Mr Miliband's speech, Mr Farron said: "Ed Miliband has spent his first 100 days doing exactly nothing. No answers, no policies and no apology for the mess that Labour made, just indecision, head-in-the-sand economics and a blank piece of paper.
"In Government he failed on the economy, in opposition he's failed the people of Oldham and Saddleworth by promoting a disgraced MP who spread racially divisive lies."
Price of a pint likely to soar over 3
The VAT increase will lead to the typical cost of a pint of beer in a pub breaking through the 3 barrier for the first time, a trade body said.
The British Beer & Pub Association (BBPA) said the increase in VAT to 20 per cent would add a further 6p to the cost of a pint of beer, on top of the 26 per cent rise in beer tax seen during the past two years.
It warned that the "double whammy" of the increase to duty and VAT was placing "shackles" on the pub and hospitality sector, and it urged the Government to abandon plans for further beer tax increases.
The warning comes as nervous retailers promise to absorb or delay today's 2.5 per cent VAT hike but admit they can only defer higher prices for so long.
The BBPA said the tax increase would hit pubs, in which beer is the key seller, more than other retailers, as many are small, family-run businesses, which are less able to absorb the cost than big supermarkets.
Research carried out for the group by Oxford Economics suggests that the VAT increase will lead to the loss of around 8,800 jobs related to the sale of beer.