Darling unveils emergency measures

VAT will be temporarily cut to 15% and £1 billion will be put into small business lending, as part of a range of emergency measures to bolster the UK economy.

Releasing his pre-Budget report, Chancellor Alistair Darling announced measures to reduce consumer prices and increase cash flow for firms.

The cut in VAT will take effect from next Monday (1 Dec) and last until the end of 2009. Duties on petrol, alcohol and tobacco will be increased accordingly to keep overall costs "the same to consumers this year".

Other actions taken include a postponement of the increase in corporation tax for small businesses - which had been due to rise to 22% - and the introduction of a new 45% tax rate for those earning more than £150,000 per year.

The measures mean that the UK Government's borrowing will more than double to £78 billion next year, and rise again to £118 billion in 2010.

Shadow chancellor George Osborne said that the chancellor was leaving an "unexploded tax bombshell", and that the cut in VAT would not help retailers that had already had to slash prices.

Lib Dem treasury spokesperson Vince Cable welcomed the action on bank lending, but said that the chancellor's tax relief plans were a "fig leaf" that would not do enough to help low-earners.