Tax cuts are set to give millions of families a cash bonus for Christmas as the Government takes drastic steps in order to tackle the recession.

Gordon Brown and David Cameron today signalled that tax cuts must form part of the solution to the economic downturn.

The Prime Minister sent out a strong message that tax cuts will be announced in Chancellor Alistair Darling’s autumn mini-budget expected at the end of the month. Mr Cameron confirmed he will be unveiling tax cuts tomorrow.

They will be targeted at businesses to prevent people losing their jobs.

Mr Brown said: “What I am determined to do is to get all countries around the world trying to get their economies moving again and one way you can do that is by putting more money into the economy by tax cuts or by public spending rises.”

“That’s something that we’ve got to look at in the next few weeks.”

The Centre for Economics and Business Research has called for a temporary cut in VAT from 17.5 per cent to 12.5 per cent – which could cost the Treasury billions of pounds in tax takings but which the think tank argues would pay for itself by getting people spending more in the high street.

Scrap

Mr Darling is also being urged by Labour MPs to postpone or scrap next spring’s increase in road tax which will see vehicle excise duty double over two years for the owners of hundreds of thousands of family cars.

The Chancellor could also decide to leave more cash in people’s pockets by extending last month’s cut for basic rate income tax payers to compensate some of the five million hit by the PM’s decision to axe the 10p tax band.

Any tax cut would come on top of last week’s interest rate cut, which has taken up to £140 a month off a £150,000 mortgage.

Mr Cameron said that the Conservatives would not stand idly by and watch companies fail and throw people out of work, but he said any tax cuts must come from savings elsewhere.

“You don’t need a long memory in this country to remember the trauma of mass unemployment,” he said. As a recession sets in, hundreds of thousands of people are at risk of losing their jobs, and as recessions go on, long-term unemployment soars,” he added.

By John Hipwood