Discount retailers have warned that a rise in VAT would smash their margins and result in some products being pulled off the shelves.

Home Bargains operations director Joe Morris said margins could be halved in the value sector. He said: “Small numbers can have a massive effect. Only the strong will survive.” He added a VAT rise could result in a decline in retailers’ profits of between 10% and 50%, depending on margins.

Poundland chief executive Jim McCarthy described any potential VAT rise as “unwelcome”. He added: “If we find we can’t make a profit out of a product, we’d have to delist it.”

Rival 99p Stores said it would consider pulling products too. “We sell everything for a profit,” said buying director Faisal Lalani. He added margins could be recouped by demanding better supplier terms.

Poundland would “adjust the offer accordingly”, through smaller pack sizes and better buying. “Our aim will be to sell more,” said McCarthy. “We have operated before in VAT rising times and have prospered.”

Morris said: “It’s very difficult to put our prices up, so there’s no doubt it could have a massive impact on margin. It will make it very tough.”

He added that not all pack sizes can be reduced. “We can’t reduce the size of all the products - if you’re selling rubber gloves you can’t sell them with four fingers,” he said.

B&M Bargains joint managing director Simon Arora said the retailer would “have to pass any tax rise on”, adding it would be “entirely unhelpful”.