A 2.5% cut in VAT to be announced today as the centrepiece of the Pre-Budget Report will be in place for just over a year, The Times learnt last night.

The tax relief will be temporary, with the rate reverting back to 17.5% in the new year of 2010 as the Chancellor, Alistair Darling, starts to claw back the cash.

It will be the most eye-catching among a series of tax measures to be outlined today that will amount to a “fiscal stimulus” of about £16bn. It will be paid for by record borrowing, which will soar to £120bn, or about 8% of GDP, next year.

The Times