Darling cuts VAT to 15% and makes 10p tax rebate permanent in pre-Budget

24 November 2008 / by Rebecca Sargent
There was good news for tax payers this afternoon as Chancellor Alistair Darling made his Pre-budget Report speech in the House of Commons.

As predicted over the weekend, the Chancellor announced that from Monday December 3, VAT would be cut from 17.5 per cent to 15 per cent. Which he, "would like retailers to pass on as soon as they can."

The cut will last for 13 months and is will be the equivalent to the Government returning £12.5billion to UK taxpayers.

According to Darling, the only way to reduce the impact of a recession is to continue borrowing and consequently investing in society through hospitals and schools. When it comes to income tax, Darling intends to help those on modest low and medium incomes by making the 10p tax rebate permanent.

From now on the two million Brits affected by the abolition of the 10p tax rate will receive an extra £145 a year, which has risen from £120. However, National Insurance contributions will rise by 0.5 per cent from 2011.

In moves that mirror those of Robin Hood, Darling also announced that the tax rate for those earning more than £150,000 will increase to 45 per cent.

In total, the measures announced by Darling will inject £20billion into the economy, moves that the Chancellor defended as essential when it comes to protecting people and pulling the economy out of a recession.

Commenting on what the Chancellor refers to as 'fiscal stimulus', Simon Ward from New Star, said: "A larger deficit does not necessarily imply a "fiscal stimulus"

"A temporary cut in VAT fails the test of being targeted at households more likely to spend any windfall gain and has no positive impact on the economy's long-term supply potential."

The announcements were also met by wrath from Shadow Conservative Chancellor George Osborne who called the NI rise a "tax on the incomes of middle Britain."

Osborne also said that "stability has gone out of the window" and that Darling is "giving with one hand and taking away with the other" and leaving Britain with an "unexploded tax bombshell."

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