A VAT LOT OF GOOD? THE CREDIT CRISIS BUDGET How Darling's rescue plans will affect the key areas of our lives V.A.T 15% Xmas cheer 'spread too thin'.

Byline: BY CLINTON MANNING BUSINESS EDITOR

GORDON Brown's love affair with Prudence ended yesterday with a pounds 20billion Government cheque.

Such spending sprees do not come naturally to the former Iron Chancellor or his successor, Alistair Darling, but the alternative - paying growing numbers of jobless to sit at home - would have been electoral suicide.

As the Chancellor put it: "There is a stark choice. You can choose to walk away, let the recession take its course, adopt a sink or swim attitude, letting families go to the wall. Or you could, as I have decided... support families by increasing borrowing which will reduce the impact and length of the recession."

But to pay for its rescue package the Government will be forced to go on an unprecedented borrowing binge. The national debt will rise to pounds 1trillion in just a few years, creating what the Tories call a "huge unexploded tax bomb".

The big question is whether ministers are spending our money wisely - in short, will the gamble pay off?

The City liked it. The FTSE 100 Index shot up almost 10 per cent yesterday - its biggest one-day gain - adding pounds 90billion to the value of leading firms.

But while there is welcome extra cash for pensioners, mums and small firms, there is a feeling that the pounds 20billion may be spread too thinly.

The lion's share - pounds 12.5billion - will pay for a 2.5 per cent cut in VAT from next Monday. The idea is to boost spending in the run-up to Christmas. But VAT is not the answer as people do not have money to spend.

There is no VAT on things people must buy such as food and children's clothes.

And it will make such a tiny difference to the cost of the luxuries people might buy that it is highly unlikely to start a stampede to the shops.

After all, shops are already slashing prices by up to 40 per cent and the tills are not ringing.

Store bosses branded the VAT cut a "costly nightmare" at the busiest time of the year.

The British Retail Consortium said: "Stores will have to go through their stock item by item and sums will be complex with the difference amounting to a fraction of a penny."

The problem with cutting VAT is that it is not only expensive and a headache to implement - it is almost invisible.

It is like a million tiny pinpricks when what was needed was huge cash injections to stop the rot in the housing market and create jobs. The Chancellor could also have put more money in people's pockets by raising tax thresholds. Labour's failure to do this has dragged more people into the 40 per cent tax bracket starting at pounds 34,800.

Scrapping stamp duty or extending the amnesty for first-time buyers could have helped end the property slump.

Few want a return to rocketing prices but we need an end to paralysis as so many jobs hinge on the housing market.

Unemployment and the fear of unemployment - as well as the actions of the banks - is why people are not moving house. It is fear that slammed the brakes on car sales and why stores face their toughest Christmas for 30 years.

David Frost, British Chamber of Commerce chief, said: "If I were marking the Chancellor's report card, I'd say 'could do better'." That was also the view of some in the Labour Party. MP John McDonnell explained: "It will not recession-proof those hardest hit. It is not addressing the real issues of people struggling to make ends meet and keep a roof over their heads."

The Chancellor did reveal plans to accelerate pounds 3billion worth of spending on schools, roads and social housing.

But much more should have been earmarked for major construction projects to help an industry on its knees. That would have looked more like the building blocks of a real, lasting recovery.

Cars Drive for green charge

A REVERSE on incoming green car taxes was welcomed by motoring groups.

The Chancellor watered down changes to vehicle excise duty that would have cost some car owners an extra pounds 90 a year. Road taxes will rise by a maximum of pounds 5 next year and pounds 30 for the most polluting cars in 2010.

But Mr Darling was accused of "giving with one hand and taking away with the other" over fuel duty and VAT. The cut in VAT will not mean lower prices because of an increase in duty.

The AA's Edmund King warned: "By increasing fuel duty whilst reducing VAT the Chancellor is playing roulette. If the global price of oil increases this hike may come back to haunt the Government.

"It also means that when VAT reverts to 17.5 per cent the motorist will be hit at the pumps again."

Flights Air tax takes off

HOLIDAYMAKERS flying to the Med face an pounds 11 rise in fares from next November.

Those going to Florida or New York will pay pounds 45 each extra, rising to pounds 60 the year after.

Mr Darling says the Air Passenger Duty is necessary to help the environment.

He has tweaked the plans so that instead of a flat tax per journey, passengers will be charged on how far they fly.

From November 2010, it will cost an extra pounds 12 for under 2,000 miles, pounds 60 extra for between 2,001 and 4,000 miles - that's New York or Boston - and pounds 75 for a flight of between 4,001 and 6,000 miles. Flights of more than 6,000 miles (Australia or New Zealand) will cost an extra pounds 85.

But Andy Harrison of easyJet said: "He has made a bad situation worse by increasing the burden of APD on hard-working families."

Public finance Fixing schools

A TOTAL of pounds 3billion will be spent on school repairs, motorway building and flood defences in a massive programme of public works.

School building will get pounds 800million, including cash for the installation of 300 kitchens.

Improvements to colleges and universities will be funded to the tune of pounds 442million.

The money had been set aside to be invested over the next three years but the Government wants it spent now to keep the economy ticking over The Chancellor has provided pounds 700million for building and widening motorways - and for 200 new train carriages. There is pounds 100million to refurbish 600 GP surgeries and pounds 20million for flood defences.

Unison leader Dave Prentis said: "Brown and Darling know what the country needs. The Tories are like rabbits caught in headlights."

Houses pounds 750m homes boost

PLANS to pump pounds 750million into the stagnant property industry were welcomed by experts.

More than pounds 250million will pay for improvements to 25,000 association and council homes.

A further pounds 175million will be spent on repair and maintenance for council houses.

And pounds 150million will go on building 2,000 homes for families to rent.

Also, anyone made jobless will get the interest on the mortgage paid on properties up to a value of pounds 200,000, while lenders will have to wait three months after a borrower falls into arrears before repossession proceedings.

The Housing Federation's David Orr said: "The Chancellor is to be commended for announcing that he is bringing forward the earmarked investment for new social homes."

Small businesses Welcome pounds 7billion support and more time to pay bills

STRUGGLING small firms have been thrown a pounds 7billion lifeline.

The package is aimed at saving family and other small businesses, which employ six out of 10 workers.

Alistair Darling has done a deal to get pounds 4billion of European cash passed on to British firms.

The Chancellor has also set up a pounds 1billion emergency loan scheme for those who find it hard to borrow from High Street banks.

The Treasury will lend pounds 1,000 to pounds 1million to firms in that position.

Tax rises due to come in next year have been shelved and small businesses will be able to stagger payments to the taxman. The Revenue's Lesley Strathie said: "We are committed to supporting businesses experiencing temporary difficulties and understand some businesses want to talk to us about extra time to pay."

The Federation of Small Businesses warmly welcomed the package.

President John Walker said the pounds 1billion loans scheme would "provide a vital cash boost to those struggling with rising costs and lack of credit. Measures such as giving businesses longer to pay and off-setting losses will be a welcome breather."

But David Frost, of the British Chamber of Commerce, said future tax rises meant Mr Darling "could do better". He said: "At the very time when the economy should be coming out of the recession, businesses will face an extra tax on employing people. This is not the best way to reduce unemployment."

Pensions 'Billions for the bankers, but still offering peanuts to OAPs'

THE Chancellor's measures to help older people have been described as "skinflint".

Mervyn Kohler, special adviser for Help the Aged, said: "If this Pre-Budget Report represents a bleak picture of the UK economy, it delivers a truly skinflint package for the UK's older citizens.

"The Government has turned a blind eye on older people. Squeezed by high inflation on basic goods and services, especially fuel, older people were desperately looking for substantial help this winter - but the chilling message from the Chancellor is 'keep struggling'."

Pension credit is to be increased in April from pounds 124 to pounds 130 a week for individuals and from pounds 189 to pounds 198 for couples, while state pensions will rise from pounds 90.70 to pounds 95.25 for a single person.

Every pensioner will get a one-off payment of pounds 60 - in addition to the pounds 10 Christmas bonus - from January.

These are on top of the winter fuel payment worth up to pounds 400 a year. But the National Pensioners Convention said the announcements had not gone far enough or fast enough to prevent a recession in retirement.

General secretary Joe Harris said: "Mr Darling has found billions for bankers but still offers peanuts to pensioners.

"Older people spend a higher proportion of their income on those items with the fastest-rising prices."

Macmillan Cancer Support called for a one-off payment for vulnerable cancer sufferers.

Jobs pounds 1.3bn deal to get unemployed back into work as soon as possible

PEOPLE thrown out of work will get more help to find new jobs or retrain under a pounds 1.3billion package to fight unemployment.

Two million people face Christmas on the dole as the recession bites. A million more could join them before it is over.

The Chancellor said: "I am determined to help those who are made redundant move quickly into a new job."

A "rapid response" service giving advice on vacancies is being extended to all workers who lose their jobs, not just those laid off by large firms.

Money will also be ploughed into the Train to Gain scheme to give people new skills.

There will also be a fresh drive to fill the half a million job vacancies that currently exist.

A Jobcentre scheme to match local firms with the long-term unemployed will take on those recently made redundant.

And 20 of Britain's largest employers, including Royal Mail and Tesco, have agreed to take part in a nationwide project to get people back into work.

Mr Darling said job centres would get more money to cope with the jobless influx.

But the PCS, which represents staff, said: "The Government must reverse its job cuts across civil and public services." Paul Kenny, of the GMB union, added: "We must keep people in work or pay for unemployment."

LOG ON FOR MORE HELP

Video: Watch Alistair Darling's pre-budget report speech at www.mirror.co.uk/video

Money advice: Want to know what it means for you? Email your queries to our personal finance editor John Husband at [e-mail]

Vote: Was the Chancellor's report a hit or a miss? Go to www.mirror.co.uk/news to have your say

Latest: Get all the latest reaction and money news at www.mirror.co.uk/news

CAPTION(S):

BIG SELL Darling's speech on Comet store TVs yesterday Picture: ROGER ALLEN; ACTION Tony Woodley wants banks curbed; WARNING GMB union's Paul Kenny; WORRIES David Frost, Chamber of Commerce