British Chancellor of the Exchequer Alistair Darling has announced that the UK VAT rate will return to 17.5% on 1 January as planned, with no other changes in VAT.
Speaking on the publication of the Pre-Budget report, Mr Darling admitted that the recession was far deeper than he had predicted and announced a public sector pay squeeze to help pay off spiralling national debt.
The Chancellor said public sector workers face a 1% pay cap from 2011, a move which provoked union fury.
Bankers also face a crackdown with a new one-off tax on big bonuses.
Mr Darling laid out plans to slash spending from 2011 - after the General Election - as he admitted the economy would shrink by 4.75% in 2009 compared to his April Budget estimate of 3.5%.
He also said the public finances were deeper in the red with a deficit of £178bn this year compared to the £175bn he had predicted.
But Mr Darling insisted that the economy would start growing by the end of the year and next year would grow by between 1% and 1.5%.
Shadow chancellor George Osborne immediately accused Mr Darling of having 'ducked' the crucial decisions to get public finances back on track.
'They have lost all moral authority to govern today.'
'Every family in the country is going to be forced to pay for years for this Prime Minister's mistakes. No one will ever believe a word they say on the economy again.'
