Mr Cameron said tackling the deficit was important for the economy Prime Minister David Cameron has said that the rise in VAT from 17.5% to 20% is likely to be permanent.
He told the BBC’s Andrew Marr Show the government was trying to deal with the “structural budget deficit” – the gap between spending and taxes.
“That is structural, that’s not going to go away because of the growth, so the changes we are making have to be pretty permanent too.”
He said 2011 would be “difficult” but he was “optimistic” for the future.
And the prime minister stressed the Coalition was a “strong government” and would not be deterred by the threat of strikes from its plans to reform the economy.
The government hopes the VAT rise will raise £13bn a year to tackle Britain’s deficit.
However 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.
And Labour says the increase in VAT, which came into effect on Tuesday, will cost the average family £7.50 a week.
In the interview Mr Cameron said the VAT rise was part of an economic policy which was predicted to see an increase in employment across the Parliament.
“The trade unions need to know they’re not going to be able to push anyone around by holding this strike or that strike or even a whole lot of strikes together – they can forget it.”
David Cameron
Asked how many jobs were predicted to be lost as a result of the VAT rise, he said any tax rise would have an impact on the economy.
However he added if the budget deficit was not tackled Britain would be “in a hole like Ireland or Greece” and confidence would “sap” out of the economy.
Mr Cameron said: “If you didn’t do VAT, what tax would you do? The first category there would probably be National Insurance. that’s what Labour have committed to – and putting up National Insurance when you’re trying to get the economy growing and jobs growing would be a perverse thing to do.”
Labour had planned to increase National Insurance Contributions (NICs) by 1% for both employers and employees.
Instead, the Coaltion is raising the starting point for employers’ NICs to reduce the cost to firms, and is leaving in place the higher levies on employees.
Mr Cameron also said he hoped the new top rate of income tax would not be permanent because it would discourage people from working, living in the UK and “getting on”.
He rejected suggestions it was unfair to keep VAT permanent while reducing the top rate of income tax and said the government was “determined” that the richest should pay the most “not only in total cash terms but also as a share of their income, and that is what the Budget and spending round achieved”.
Last week London’s mayor Boris Johnson said the 50p tax rate would harm the UK’s economy if it was made permanent – Chancellor George Osborne has also described it as a “temporary feature of our tax system”.
Mr Cameron said while the coalition government was trying to help the economy recover from a “vast pit of debt”, 800,000 people were being also lifted out of income tax altogether because it was raising income tax thresholds.
“That will help all people who are basic rate taxpayers… it is going to be difficult but we did things in the Budget to help the economy, to help business, to make it cheaper to employ people.
“That’s where we’ve got to put the priority this year, to get the economy moving.”
But Mr Cameron admitted 2011 was going to be “a tough and difficult year.”
He said strikes were not “inevitable” and told the BBC: “Striking is not going to achieve anything and the trade unions need to know they’re not going to be able to push anyone around by holding this strike or that strike or even a whole lot of strikes together – they can forget it.
“This government is a very strong government. It has a strong majority, I believe the public is right behind the approach we are taking and people will need to know we will not change course because one union or another at the union wants to kick off.”
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