Stores promise to pass on reduction to shoppers

Shops have promised to slash prices after today's emergency VAT reduction, knocking hundreds of millions of pounds off the cost of Christmas presents, food and drink.

On top of widespread sales already taking place on the high street, the British Retail Consortium said its members would cut prices by however much the Chancellor Alistair Darling squeezes the sales tax. In his pre-Budget report, to be delivered to MPs this afternoon Mr Darling is to cut VAT from 17.5 per cent for a "holiday" of up to two years. A predicted cut to 15 per cut would slash £12bn off the tax.

Given that Christmas is such an important part of the £265bn annual retail sales, lower prices could save shoppers as much as £2bn in the last six weeks of the year – almost £20 for every British adult.

Mr Darling hopes the measure will bolster confidence and encourage shoppers to spend more freely amid signs that retail sales have lurched steeply downwards during the past fortnight. However, banks have failed to pump more money into the economy through lending in return for the billions they have received from taxpayers, raising fears that retailers may also fail to pass on the help they receive.

Last night a spokesman for the British Retail Consortium dismissed that concern, saying that its members would pass on the 14 per cent cut in VAT.

"I can understand why there is concern but our members will certainly be passing it on because they support policies which help hard-pressed customers at this time," he said. Retailers who did not pass on cuts would risk "uproar" from the public and the media, he added.