UK Chancellor, Alistair Darling, announced his 2008 Pre-Budget report today.

Amongst government measures intended to beat the recession, Value Added Tax is to be cut from 17.5% to 15% from 1 December 2008 until 31 December 2009. Alcohol and tobacco prices will not fall, as duty on them will be increased to match the VAT cut.

The government’s plan is to boost the economy through greater spending. Cut VAT now, to convince us that prices are going to go up later, thus encouraging us to spend, spend, spend.

But will these measures work?

Many people have borrowed heavily recently, and may now be tempted to pay off debt.  Others may save up for a rainy day rather than buy more goods in the shops, conscious of the fact that higher government borrowing now, will eventually have to be paid back.