Chancellor announces 2.5% VAT cut

By John Hill on November 24, 2008 4:21 PM |

Tagged with:

The Government has announced a 2.5 per cent cut in VAT until the end of 2009 as it moves to combat the effects of recession.

Chancellor Alistair Darling pledged to slash VAT to 15 per cent from next Monday (December 1), reportedly saving consumers around £12.5billion.

As he made the announcement in his pre-budget report on Monday, the Chancellor said he hoped retailers would pass the savings onto customers "as soon as possible".

Mr Darling said: "This is a comprehensive package of support which businesses have been asking us to provide.

"It is a £7billion package of measures, real help which we can provide because we have made the decision to support businesses through this recession."

The chancellor also announced that £3billion of capital spending will be pushed forward from 2010/11 to this year to help provide support for housing and road projects.

The Government has also promised to make a further £5billion of efficiency savings in 2010/11.

The expected top band tax rise was confirmed, with those earning over £150,000 to be asked to pay 45 per cent in taxes after the next election.

National Insurance contributions will rise by 0.5 per cent from 2011, while duty on alcohol, tobacco and petrol will also increase.

The Government will inject a further £20billion into the economy in a bid to minimise the impact of recession.

Government spending will jump to £78billion this year from an estimated £36billion, and then to £118billion next year.

Mr Darling claimed his measures would allow the UK to balance the books by 2015/16.

Mr Darling said: "If we did nothing we would have a deeper and longer recession which would cost the country more in the long term.

"In these extraordinary circumstances allowing borrowing to rise is the right thing for the economy.

"These are extraordinary times and they call for exceptional measures. These require action now to help people and action now to build a stable economy."

But the Conservatives branded the budget "reckless" and a sign of "the biggest failure of public policy for a generation".

Shadow Chancellor George Osbourne argued that the increase in borrowing would put a "huge unexploded tax bombshell" under the British economy, and claimed Mr Darling "did not fix the roof when the sun was shining".

He said: "Stability has gone out of the window. Prudence is dead. Labour has done it again.

"This budget is all about the political cycle and not the economic cycle.

"Like the gambler that can't give up, he thinks he can borrow his way out of debt."