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VAT 'to be cut in rescue package' VAT 'to be cut in rescue package'
(about 1 hour 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. Gordon Brown has refused to comment on reports the government will cut VAT by 2.5% 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". But the PM said "substantial" measures would be in the pre-Budget report on Monday to pump money into the economy.
But he conceded it may mean higher taxes in the longer term to pay for it. And he denied increasing borrowing to fund tax cuts was a "gamble", saying it was "responsible and necessary".
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 has warned the government's plans will lead to a future "tax bombshell".
Planned giveaways Mr Brown refused to speculate on the contents of Chancellor Alistair Darling's statement on Monday, but he said there was a consensus around the world that any "fiscal stimulus" had to be "substantial to have an impact".
The specifics of Chancellor Alistair Darling's recovery plan will remain under wraps until Monday. Experts say the government will have to increase borrowing to record levels of £100bn or more, which the country will have to pay back later in higher taxes - and there is no guarantee tax cuts will 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. 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 David Cameron Conservative leader
But Mr Brown told BBC One's The Politics Show: "I don't see this as a gamble, I see this as necessary, responsible action, that any sensible government would want to take.
"Those people who say do nothing now, would leave people, as in the 1980s and 1990s, without hope that their mortgage problems could be sorted out, or their jobs problems could be sorted out.
"It would be lacking in compassion, as well as irresponsible, in my view."
Planned giveaway
Pressed on whether Mr Darling would also be setting out details of future tax rises on Monday, Mr Brown said: "I think you'll find that everything is above board. It is stated. There is no hidden manifesto. People will be absolutely clear that we are taking action now to prevent permanent damage later."
He refused to be drawn on reports he is considering a summer general election to capitalise on his improved fortunes in the polls.
He said his "undivided attention" was on fixing the economy.
Widespread press reports suggest Mr Darling will temporarily cut VAT by 2.5% to 15% - the lowest level allowed under EU law - in an effort to boost consumer spending.
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 the biggest shift in Labour's economic policy since it came to power in 1997.Taken together with other planned giveaways, it would mark the biggest shift 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." Earlier, business secretary 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 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." But he said action was needed now to deliver the sort of stimulus necessary to raise demand, "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". Conservative leader David Cameron said he was "sceptical" that the government's plan would get consumers spending because they would be aware of the "tax bombshell" they face in future years to repay the national debt.
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.
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."