Ortus claims if VAT is raised to 20%, 200,000 jobs could go, costing the current benefits system approximately £1.3 billion.
It claims an increase to 25% (EU maximum) could put more than 600,000 out of work.
The Ortus forecast suggests an increase from 17.5% to 20% in the UK could cost the country approximately 201,000 jobs as the increase in VAT is not only much higher, but we have a much larger workforce (more than 31.2 million people).
Assuming these people all claim jobseekers allowance (between £100.95 per couple and £64.30 per individual every week), and remain unemployed for 18 months, this will cost the country approximately £1.3 billion in benefits.
A larger increase in VAT, taking Britain's VAT to 25% - similar to the levels in Denmark, Hungary or Sweden - would cost more than 600,000 jobs and £3.9 billion in benefits.
Stephen Menko, UK director of Ortus, said, "Previous studies conducted in other European states suggest we can expect over 200,000 job losses from a move up to 20% VAT. The chancellor may well feel that is a price worth paying - but it certainly won't be without its costs. The only way to reduce job loss significantly would be to decrease other taxes, which is an option the chancellor doesn't have.
"The question is will George Osborne stop at 20%? The EU allows members to increase VAT all the way up to 25%. As VAT is the third largest source of government revenues, the chancellor might view an increase to 25% as a very attractive option. That would certainly have a much larger impact on the deficit than the £6 billon worth of cuts the Tories have announced since the election."