Economic plans 'to include VAT cut'

1:11pm Sunday 23rd November 2008

Every household in the country has been promised immediate support to get through the economic downturn amid growing expectations of a cut in Value Added Tax (VAT).

A reduction of VAT from 17.5% to 15% was emerging as a likely centrepiece of the Pre-Budget Report (PBR) as Gordon Brown and Alistair Darling signalled they were "ready to help".

The Government is expected to pump between £15 and £20 billion into the economy in a Keynesian-style bid to spend Britain out of the downturn.

As well as the VAT change, which would cost £12.5 billion, moves are thought to include further tax cuts targeted at the least well off.

Other options include postponing the introduction of increased vehicle excise duty for older vehicles and taxpayer-funded guarantees on loans to small businesses.

There are also suggestions of a new three month grace period for mortgage holders struggling to keep up with their repayments before repossession proceedings kick in.

Further efficiency savings in the public sector will be announced, allowing some expenditure to be used more constructively to fight the recession.

But debt is predicted to soar to more than £120 billion, fuelling concerns about the tax rises and spending cuts that may be necessary later.

Mr Darling promised to set out clearly how the PBR's actions would be paid for. He explicitly acknowledged Britain was "moving into a recession" but sought to strike an upbeat note.

"I will not play down the economic difficulties but equally I am confident that with sensible and responsible measures they can be overcome," he added.