Cutting taxes now is the only way to avoid a deep and long lasting recession according to prime minister Gordon Brown. This shock move will require the government borrowing billions now to pay for the tax cuts, that will have to be repaid later in the form of tax rises or public spending cuts.
It is expected that the government will reduce VAT by 2.5 %, down to 15%, with immediate effect. This would cost between £15 billion to £20 billion and would be paid for, in part, by increasing income tax for high earners with annual salaries in excess of £150,000.
The reduction in tax should help hard up consumers that are struggling financially, but the small reduction in VAT is not likely to make much difference to the most indebted consumers, those already on debt management plans, IVAs or other debt help schemes.
