Chancellor Alistair Darling is expected to cut VAT to 15 per cent in today's pre-Budget report as part of a raft of measures designed to stimulate the economy.

The 2.5 per cent cut – the first time the tax has ever been cut – was widely trailed in the weekend papers ahead of the statement at 3.30pm this afternoon.

The cut in VAT will cost the Treasury about£12 billion in lost revenue and according to reports will only be a temporary measure, expected to be reversed in early 2010.

Although the measure will cause some disruption to retailers as they adjust prices to pass on the cut, the move was welcomed by the British Retail Consortium as helpful to the industry.

However, the impact will be fairly modest in the light of the 20 per cent discounts that have been offered by many retailers over the past week.

Small concessions are expected on the empty property rates relief, but no significant changes to the controversial increases in business rates, which are due in 2009 and 2010, are anticipated.

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