Alistair Darling has cut VAT from 17.5% to 15% as part of his pre-Budget report designed to boost the economy. The chancellor said the tax cut would start on Monday and last for 13 months. However, he added that duty on petrol,

alcohol and tobacco would be increased – so they would remain at the price they are now.

It had been hoped the cut in VAT would bring the price of petrol down by 2p per litre.

In his Commons statement this afternoon, Darling stated that Britain would officially enter recession in 2009, warning that it would be a “longer and deeper recession” without his changes.

He said the UK’s growth rate woulx be between minus 0.75% and minus 1.25%, down from the 2.5% forecast in March - the biggest ever revision on record. He added that the government would inject an extra £20bn into the economy, or 1% of GDP, funded in part by an extra £5bn in efficiency savings.

He started his speech by saying Britain faced “exceptional” economic circumstances and that he wanted to take “fair and responsible” steps to protect and support businesses and people now – while putting public finances on the right path for the future.

He added that it would be “perverse and damaging” to keep to government borrowing rules in the current crisis, announcing that they would be temporarily suspended. But he said the books would be balanced again by 2015/16.

Therefore, government borrowing is to more than double to £78bn this year and £118bn next year, before starting to come down.

Other changes include a 5p increase in income tax for top earners, although this will not come into effect until after the next election. And all National Insurance contributions will go up by 0.5% from 2011.

The chancellor is also expected to postpone the planned increase in vehicle excise duty.