VAT cut expected

A 2.5% cut in VAT is on the cards as part of a package to jump-start the economy, now widely believed to be in recession.

The temporary cut, which would see VAT fall from 17.5% to 15% in a bid to get shoppers spending, is expected to be announced by Chancellor of the Exchequer Alistair Darling in the pre-Budget report, due at 3.30pm on Monday.

Speaking on BBC One's The Politics Show, Prime Minister Gordon Brown would not comment on the content of the report, but said a lack of action now would be "lacking in compassion, as well as irresponsible".

Predicted measures include a temporary halt to increases to Corporation Tax and Vehicle Excise duty, and a year's extension to the 10p tax rebate.

And this could be paid for after the next election by a 5p hike in income tax for people earning over £150,000.

Such measures are likely to please business groups that have called on the Government for action in the run up to the report.

Mr Brown told a CBI conference: "We will continue to do whatever it takes.

"We are putting in place reforms and investment to benefit from long term opportunities that the global economy will throw up.

"And this is a time for resolution - for solidity in responding to a unique financial crisis, a time for powerful action to equip us for globalisation's challenge, and in due course to reap its rewards."

IMAGECarl Court/PA Wire