Chancellor George Osborne insisted that today's VAT rise from 17.5% to 20% was a "tough but necessary step" towards Britain's economic recovery.
He confirmed he regarded the increase introduced from midnight as permanent, but said alternatives to tackle the deficit, such as rises in National Insurance or income tax, would hit poorer families harder.
The VAT hike, announced in last year's Budget, is designed to raise £13 billion a year. Retailers have warned it could depress consumer spending in the high streets, while there are also fears it will fuel inflation and put upward pressure on pay settlements.
Shadow chancellor Alan Johnson accused the Government of breaking an election promise and said Labour favoured National Insurance rises rather than the VAT hike.
Mr Osborne told the BBC Radio 4 Today programme: "I think it is a reasonable rate to set, given the very difficult situation we find ourselves in. The VAT rise is a tough but necessary step towards Britain's economic recovery.
"If you don't want to raise VAT, you have got to do something else."
He added: "I said before Christmas that the VAT rate I regarded as permanent because it is a structural tax change."
The Chancellor added: "Income tax and National Insurance (increases) would have a more damaging impact on poorer people in our society."
Today's rise is the second VAT increase in a year, after Labour chancellor Alistair Darling restored the 17.5% rate last January having temporarily reduced it to 15% for 13 months to stimulate the economy during the recession.
The change affects any VAT-registered business which sells or purchases goods or services that are subject to the standard rate. Most foodstuffs, children's clothing and books remain zero-rated and reduced rates remain on items such as children's car seats and supplies of domestic fuel and power.
Online shopping group Kelkoo said the change would increase the price of a litre of petrol from £1.19 to £1.22, a digital camera from £131 to £133.79 and a Ford Focus car from £15,195 to £15,518.
The British Beer & Pub Association said it would add 6p to the cost of a pint of beer, pushing it through the £3 barrier for the first time.
Many shoppers are believed to have beaten the rise by buying big-ticket items in the New Year sales over the past few days before the new rate came into effect.
A report by the Centre for Retail Research suggested consumers will spend an average of £324 less in the remainder of this year as a result, cutting UK retail sales by as much as £2.2 billion in the first quarter of 2011 alone.
Mr Osborne said that, like any chancellor, he would not rule future tax changes in or out, but stressed: "Let me make it absolutely clear: our plans for the deficit reduction are set out now. All the components are in place, so we have set out the entire plans. There's not a missing component."
He added that the VAT move "will increase employment" because it would increase confidence that the Government was tackling the country's deficit.
Mr Johnson told Today: "This is a broken promise - this was the big issue of the General Election campaign.
"It does nothing for jobs and growth - this year has to be all about continuing the growth momentum. It hits the poorest hardest.
"For those three reasons this is the wrong tax at the wrong time."
He added: "We need to get the deficit down, there's no argument about that."
Mr Johnson said Labour had outlined £19 billion of tax rises in its last Budget, one element being NI increases.
"That was the argument at the General Election, that's still our argument now," said Mr Johnson.
Bob Crow, general secretary of the RMT transport union, said higher VAT would "raise the bar in pay negotiations this year as we fight to defend our members' standards of living".
Campaigners for a "Robin Hood tax" on banks said the proceeds from the VAT increase would be significantly less than the £20 billion which they believe could be raised from a levy on financial transactions.
Max Lawson, a spokesman for the campaign, said: "Unlike the VAT increase, a Robin Hood tax on banks would be progressive and offers a real and fair alternative.
"The Government needs to show we are in this together and take the advice of authoritative institutions such as the International Monetary Fund and the Institute for Fiscal Studies who have clearly stated that the financial sector is under-taxed.
"It is deeply unfair that those living in poverty may have to choose between paying their heating bill or giving their child a hot meal, whilst the bankers celebrate the new year with yet another round of multimillion-pound bonuses."
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