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VAT 'to be cut in rescue package' VAT 'to be cut in rescue package'
(10 minutes later)
The government is widely expected to cut VAT by 2.5% in Monday's pre-Budget report, as part of an emergency package aimed at kick-starting the economy.The government is widely expected to cut VAT by 2.5% in Monday's pre-Budget report, as part of an emergency package aimed at kick-starting the economy.
Business secretary Lord Mandelson told BBC One's Andrew Marr show action was needed to stop a "very deep recession".Business secretary Lord Mandelson told BBC One's Andrew Marr show action was needed to stop a "very deep recession".
But he conceded it may mean higher taxes in the longer term to pay for it.But he conceded it may mean higher taxes in the longer term to pay for it.
Tory leader David Cameron said he was "sceptical" the plan would work. Vince Cable, for the Liberal Democrats, said any tax cuts should be permanent.Tory leader David Cameron said he was "sceptical" the plan would work. Vince Cable, for the Liberal Democrats, said any tax cuts should be permanent.
Planned giveawaysPlanned giveaways
The specifics of Chancellor Alistair Darling's recovery plan will remain under wraps until Monday.The specifics of Chancellor Alistair Darling's recovery plan will remain under wraps until Monday.
But widespread press reports suggest VAT could temporarily drop by 2.5% to 15% - the lowest level allowed under EU law - in an effort to get consumers spending again.But widespread press reports suggest VAT could temporarily drop by 2.5% to 15% - the lowest level allowed under EU law - in an effort to get consumers spending again.
However, it is not known if the cut would come into effect before Christmas.However, it is not known if the cut would come into effect before Christmas.
It would be the first time the sales tax has been changed since the early 1990s, when the Conservatives increased it to 17.5%.It would be the first time the sales tax has been changed since the early 1990s, when the Conservatives increased it to 17.5%.
Taken together with other planned giveaways, it would mark one of the biggest shifts in Labour's economic policy since it came to power in 1997.Taken together with other planned giveaways, it would mark one of the biggest shifts in Labour's economic policy since it came to power in 1997.
Other measures could include:
  • Extending for another year the £120 rebate for low-paid workers who lost out through the abolition of the 10p tax rate
  • Increasing the period of grace before lenders repossess homes to three months
  • Scrapping planned rises in vehicle excise duty for another year
Other measures could include:
  • Extending for another year the £120 rebate for low-paid workers who lost out through the abolition of the 10p tax rate
  • Increasing the period of grace before lenders repossess homes to three months
  • Scrapping planned rises in vehicle excise duty for another year
'Consumer confidence''Consumer confidence'
Writing in the News of the World, Prime Minister Gordon Brown said: "If we do not act now, the downturn will be longer and more severe."Writing in the News of the World, Prime Minister Gordon Brown said: "If we do not act now, the downturn will be longer and more severe."
It is thought Alistair Darling will say on Monday that the government's recovery formula will leave Britain with a £100bn debt that the country will have to pay back later in the form of higher taxes. But it is thought Alistair Darling will say on Monday that the government's recovery formula will leave Britain with a £100bn debt that the country will have to pay back later in the form of higher taxes.
David Cameron: 'The government is giving with one hand and taking away with the other'David Cameron: 'The government is giving with one hand and taking away with the other'
Lord Mandelson conceded any tax cuts would have to be paid for in the long term, saying: "Of course they will, if what we are going to do tomorrow (Monday) is going to be sustainable."Lord Mandelson conceded any tax cuts would have to be paid for in the long term, saying: "Of course they will, if what we are going to do tomorrow (Monday) is going to be sustainable."
But he said action was needed now to deliver "the sort of stimulus to the economy that will raise consumers' confidence, that will encourage them to spend, put more money in their hands, therefore raising demand and filling up order books again".But he said action was needed now to deliver "the sort of stimulus to the economy that will raise consumers' confidence, that will encourage them to spend, put more money in their hands, therefore raising demand and filling up order books again".
He conceded consumers might not respond in the way the government wanted, but he said it was better than taking no action. And he accused the Conservatives of having an "inaction plan".He conceded consumers might not respond in the way the government wanted, but he said it was better than taking no action. And he accused the Conservatives of having an "inaction plan".
Conservative leader David Cameron said he was "sceptical" that the government's plan would work because people would be aware of the "tax bombshell" they face in future years to repay the national debt.Conservative leader David Cameron said he was "sceptical" that the government's plan would work because people would be aware of the "tax bombshell" they face in future years to repay the national debt.
He said: "I think people are going to be shocked tomorrow (Monday) when they see the extent of government borrowing.He said: "I think people are going to be shocked tomorrow (Monday) when they see the extent of government borrowing.
"Maybe £80bn this year, before the recession's even properly started, and possibly over £100bn next year. And next year that is over £4,000 extra for every family in the country."Maybe £80bn this year, before the recession's even properly started, and possibly over £100bn next year. And next year that is over £4,000 extra for every family in the country.
"So I do have a real concern about a government going on a borrowing binge that even they are now admitting is going to lead to much higher taxes later.""So I do have a real concern about a government going on a borrowing binge that even they are now admitting is going to lead to much higher taxes later."
'Sustainable' alternatives'Sustainable' alternatives
The Conservative leader called for further interest rate cuts and government guarantees for loans to small firms in an effort to help homeowners and businesses.The Conservative leader called for further interest rate cuts and government guarantees for loans to small firms in an effort to help homeowners and businesses.
HAVE YOUR SAY Alistair Darling has to realise whatever he does he can't win. If he cuts taxes it will be said he's storing up debt, if he doesn't cut taxes he's harming the economy, and so it goes on Lucy Clarke, UK Send us your commentsHAVE YOUR SAY Alistair Darling has to realise whatever he does he can't win. If he cuts taxes it will be said he's storing up debt, if he doesn't cut taxes he's harming the economy, and so it goes on Lucy Clarke, UK Send us your comments
Lib Dem treasury spokesman Vince Cable said his party backed tax cuts for low and middle income workers, but said they should be made permanent by increasing taxes on the rich.Lib Dem treasury spokesman Vince Cable said his party backed tax cuts for low and middle income workers, but said they should be made permanent by increasing taxes on the rich.
He said: "A big tax cut's desirable, that's certainly the case. And a VAT cut would act very quickly, which is positive.He said: "A big tax cut's desirable, that's certainly the case. And a VAT cut would act very quickly, which is positive.
"But we prefer a different approach which is more targeted on people who really need it. And we believe that people on low incomes, low wages should get an income tax cut - lifting thresholds or reducing the rate. And that's a much better way of concentrating resources where it needs it."But we prefer a different approach which is more targeted on people who really need it. And we believe that people on low incomes, low wages should get an income tax cut - lifting thresholds or reducing the rate. And that's a much better way of concentrating resources where it needs it.
"And it would also be sustainable because we've identified how you would pay for it. It wouldn't just be a temporary handout.""And it would also be sustainable because we've identified how you would pay for it. It wouldn't just be a temporary handout."