George Osborne is taking a “severe risk” in putting the onus on taxpayers to reduce the £155bn deficit, according to Cazenove.
Richard Jeffrey, Cazenove's chief investment officer, says a renewed period of falling household spending will leave the wider economy "once again flirting with recession".
He says the Chancellor was always going to face tough decisions in cutting the deficit to £116bn in 2011/2012.
Raising VAT from 17.5% to 20% from January was the wrong one to make, Jeffrey argues.
The Government should have taken fiscal measures first, he argues, especially "at a time when the general economic environment is not helping households, and all the monetary policy levers have already been pulled."
The Government aims to reduce net borrowing from £155bn in the financial year just gone, to £20bn in 2015/2016.
It has factored in a modest amount of economic growth to help, Jeffrey says.
He writes Number 11 has taken the steps required in cutting public sector spending, but in the early years of this parliament most of the burden will still be shouldered by taxpayers.
"The main part of the revenue raising action will impact the economy when it is at its most vulnerable," he says.
"It is already the case households are coming under pressure because average earnings growth is significantly lower than inflation. The VAT increase will depress real demand, with negative consequences for output, employment and incomes.
"It is hard not to conclude it will take a heroic effort by consumers if they are now to dig even deeper into their pockets and raise real spending levels. If household spending slips back, the danger is GDP as a whole also declines."
Jeffrey adds increasing tax revenue is better achieved through stimulating the private sector than by raising rates.
