Reports over the weekend have focused on tax and what Alistair Darling is expected to do to save the UK from a prolonged economic downturn. And, as ‘fiscal stimulus’ appears to be the buzz word, tax cuts are expected.

The general consensus over the weekend was that Darling will announce a temporary cut to VAT of 2.5 per cent to 15 per cent. A move that it is hoped will stimulate the economy and encourage Brits to spend.

However, reports are also indicating that, in order to pay for such cuts, which could cost £12.5billion, with an increase in tax to high earners. Rumours suggest that tax for Brits earning more than £150,000 a year will be raised to 45 per cent at the next election in 2011.

These Robin Hood tactics have already met criticism even before they have been confirmed or denied. Many experts believe that a VAT cut of 2.5 per cent will not be enough to make a difference as Brits are becoming more money conscious.

Commenting, Steve Folklard of AXA said: “Worries about the state of the economy and job security in 2009 would lead many Britons to take advantage of a tax cut by shoring up their finances, reducing their debts or increasing savings.

“Britons are waking up to a new financial reality and are adopting a more responsible attitude to their financial security. Tax cuts may not therefore deliver the expected stimulus to the economy through increased consumer spending. It may be some time before Britons feel confident in splashing discretionary income on the high street.”

And Liberal Democrat Shadow Chancellor, Vince Cable agrees, “What we really need is permanent fully funder tax cuts targeted at those on low and average incomes, through reductions in income tax, rather than giving a temporary VAT cut, which will primarily reward the big spenders who have loads of money.”

Other proposals rumoured to be announced at the Pre-budget Report include the extension of the 10p tax rebate, which would give those earning less than £40,000 an extra £120 in 2009.

A delay on the vehicle excise duty announced at the last Budget is also on the cards according to reports, along with the creation of 10,000 jobs in the insulation industry as energy efficiency becomes a key objective.

© Fair Investment Company Ltd