Alcohol duty set to rise as VAT rate slashed

Alistar Darling has confirmed that he will cut VAT from 17.5% to 15% but will increase duties on alcohol to ensure that prices remain unchanged.

The Chancellor made the announcement today as part of a £20 billion package of tax cuts designed to revive the ailing economy.

In his pre-Budget speech to Parliament, Darling warned that the cut in VAT rates would have to be made up for with increases in duty on alcohol, tobacco and petrol.

He said he would "offset the VAT reduction" by increasing duties "by an amount which should keep the overall cost to consumers the same this year".

"This temporary reduction is the equivalent of the government giving back some twelve and a half billion pounds to consumers to boost the economy. It will make goods and services cheaper and, by encouraging spending, will help stimulate growth," said Darling.

The cut in VAT will come into effect on December 1 and continue for 13 months. In his speech, Darling urged retailers to pass on the cut to shoppers as soon as they could.

The move follows a 9% excise duty rise in March this year.

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