LONDON (Reuters) – Retailers warned Britain's new coalition government yesterday that raising the VAT sales tax to help cut the country's record budget deficit could lead to the loss of 163,000 jobs over the next four years.

Research for the British Retail Consortium, a trade body which represents around 80-90 percent of stores, said a VAT rise to 20 percent from 17.5 percent would cut consumer spending by £3.6 billion ($5.18 billion) over the same period.

Britain's deficit is running at around 11 percent of GDP and there has been speculation that a sales tax rise will be among the fiscal measures introduced to help balance the books.

The Conservative-Liberal Democrat alliance, Britain's first coalition for 65 years, will announce its spending plans in an emergency budget on June 22. Prime Minister David Cameron has refused to say whether VAT will go up.

"The budget deficit is serious," said BRC Director General Stephen Robertson. "It has to be tackled, but proposals must be judged against the implications for jobs and growth."

In an interview with Reuters on Wednesday, Robertson said a VAT hike could wreck any chance of a rise in retail sales this year.

VAT returned to 17.5 percent in January after a 13-month cut to 15 percent to help boost spending during Britain's worst recession since World War Two.