Government could begin charging VAT on food as a means of reducing the national defecit.

The matter is understood to be being discussed informally between civil servants, industry bodies and retail insiders, according to the Sunday Telegraph.

The move is so politically sensitive that all talks are being conducted “under the radar”, according to retail sources.

VAT is not imposed upon basic supermarket groceries currently, along with books, newspapers and children’s clothes.

However, a tax of between 3% and 5% on food would raise billions of pounds and help reduce government borrowings, which are likely to hit £180bn this year.

Food sales from supermarkets are estimated to total £120bn a year. The move would be highly controversial though as it would disproportionately affect poorer families.

Sainsbury’s chief executive Justin King told the paper that a tax on groceries would be a “very bad idea”. Another supermarket executive said the tax would be “political dynamite”.

A Treasury spokesman said there was “absolutely no question” of the current Chancellor imposing VAT on groceries. “It is not remotely on the table,” he said.

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