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Britain Announces Tax Cuts and Hikes To Shore Up Economy

Britain's treasury chief has announced new measures as part of a $30-billion stimulus package to shore up the country's ailing economy - including a cut in the national sales tax and help for businesses, homeowners and low-income families. VOA's Sonja Pace reports from London.

In a much touted and eagerly awaited pre-budget report, treasury chief Alistair Darling announced new measures to boost the economy.

Speaking before parliament, Darling said immediate measures are needed to inject money into the economy. At the top of the list of measures is a cut in the national sales tax, the VAT.

"I therefore proposed to cut VAT from 17.5 to 15 percent until the end of next year," said Alistair Darling. "This reduction will come into effect next Monday, December 1st."

Darling said the reduced tax rate would remain in effect until January 2010. He urged businesses to pass that tax cut along to consumers as quickly as possible.

The sales tax cut is quite certain to be popular with the public and businesses if it entices shoppers into stores, especially now during this Christmas holiday season. And that is the idea - cut the tax, lower the price and get shoppers to buy and plow those savings back into the economy.

Darling also announced tax breaks and incentives for small and medium-size businesses, help for homeowners who have trouble paying their mortgages, tax relief for low income families and government spending for schools, roads and housing. As widely expected, the treasury chief also proposed a higher tax rate for big income earners to go into effect in 2011 if the Labor party wins the next election.

To pay for the stimulus package, the government will have to borrow money and Darling acknowledged the national debt will grow to more than $175 billion, next year.

The opposition has sharply criticized the government for increasing the debt, calling it a spending binge. But Darling said these are exceptional times that require exceptional measures.

"You can choose to walk away, let the recession takes its course, adopt a sink or swim attitude, let families go to the wall - that is no action plan," he said.

The British government is wrestling with the same issues that governments around the world are facing - to keep financial institutions from going under, inject money into the economy, restore consumer confidence and at the same time manage a growing government debt.