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Chancellor Alistair Darling has cut VAT from 17.5% to 15% for 13 months in his pre-Budget report - saying it would put about £12.5bn in c##被过滤##umers' pockets.
But top rate tax will rise to 45% and all National Insurance contributi##被过滤## will go up 0.5% from 2011.
And he said he was increasing duties on alcohol, tobacco and petrol so they would remain at the price they are now.
Mr Darling said he wanted to soften the blow of a recession with the UK economy officially set to shrink next year.
PRE-BUDGET REPORT
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But shadow chancellor George Osborne, for the C##被过滤##ervatives, accused Mr Darling of "bringing this country to the verge of bankruptcy" by doubling the national debt, setting up "a huge unexploded tax bombshell timed to go off at the time of the next economic recovery".
Mr Darling slashed economic growth forecasts for next year from 2.75% to between minus 0.75% and minus 1.25% - the biggest downward revision on record.
But he said the government would inject an extra £20bn into the economy, or 1% of GDP, funded in part by an extra £5bn in efficiency savings and a big increase in government borrowing.
He said it would be "perverse and damaging" to stick to government borrowing rules in the current crisis so they would be temporarily suspended.
'Extraordinary circumstances'
Government borrowing would more than double to £78bn this year and £118bn next year, before starting to come down, with books not to be balanced again until 2015/16.
"If we did nothing we would have a deeper and longer recession that would cost the country more in the long term," Mr Darling told MPs.
"In these extraordinary circumstances allowing borrowing to rise is the right choice for the country."
In other measures, Mr Darling speeded up the introduction of rises in child benefit and slowed down the introduction of increases in vehicle excise duty.
This year's increase in the income tax personal allowance of £120 a year for basic rate taxpayers will be made permanent and increased to £145 in April, helping 22 million basic rate taxpayers - another 500,000 households not just this year but for good.
The 45% top rate will not come into effect until after the next general election, meaning Labour will not break its 2005 manifesto commitment on raising income tax.
The cut in VAT comes into effect on Monday in time for Christmas shopping.
Mr Darling's Comm##被过滤## statement heralds the biggest shake-up of Labour's economic policy since it came to power in 1997
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