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UK tax cuts to fight recession
Britain's prime minister plans extra public spending to lift economy.
Last Modified: 24 Nov 2008 15:57 GMT
The package is expected to include a cut in sales tax and help for low earners [GALLO/GETTY]

Gordon Brown, the UK prime minister, will attempt to revive the stalling British economy by spending billions of borrowed pounds on tax cuts in a bid to stop a recession turning into a slump.

The package, to be unveiled on Monday, is expected to total up to $30bn, or more than one per cent of the gross domestic product, and will include extra public spending designed to lift the economy.

Alistair Darling, Brown's finance minister, is expected to announce plans to plug the hole in state finances by raising taxes in future, including a major political shift in the form of a sharp rise in income tax for high earners.

Darling's address to parliament is expected to include a cut in sales tax and help for businesses, low earners and struggling home owners.

Recessionary slide

The stakes are high, as Britain is sliding into recession with house prices slumping, unemployment rising and manufacturing output shrinking.

Although Brown's handling of the financial crisis has lifted his declining popularity, a poll published on Sunday still showed his Labour Party trailing the opposition Conservatives by 11 points, a wider margin than some other recent surveys.

His chances of winning the next election, due by mid-2010, may depend on the recession being relatively short and shallow, but that is looking increasingly unlikely.

The National Institute of Social and Economic Research, an independent economic forecaster, said on Monday Britain's economy would shrink by 1.5 per cent next year and is not expected to start recovering until early 2010.

In March, Darling forecast growth of about two per cent this year and around 2.5 per cent in 2009.

Tax cut

The centrepiece of Monday's plan will be a temporary cut in value-added tax, several British newspapers reported.

VAT could be reduced to 15 per cent - the lowest level allowed by the European Union - from 17.5 per cent, boosting consumers' spending power before Christmas.

The cut would be reversed after one or two years.

The Sunday Times newspaper said Darling would scrap plans to increase corporation tax for small companies and exempt foreign dividends from tax in an effort to allay concerns that have led several big companies to shift their tax domicile to Ireland.

A Treasury spokesman declined to comment on the reports.

Germany, the Netherlands and Spain have already announced stimulus plans.

A European Union package, worth up to $163bn, will be unveiled on Wednesday.

Source:
Agencies
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