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Last Updated: Monday November 24 2008 16:25 GMT

Big plan may make things cheaper

Newsround's Maddy

Maddy looks into the Government's big money plans

The government has announced a plan that should make almost everything you want to buy a little bit cheaper.

In recent weeks there have been loads of news stories about global money problems called the cash crisis.

The UK has been hit hard by the crisis, so the government has decided to change some rules and laws to improve things.

It seems that the biggest of these changes is to something called VAT, and means the government will take less tax when people buy things.

Most things that we buy include VAT, which stands for Value Added Tax.

At the moment VAT is at 17.5%, which means for every pound we spend the government gets 17 and a half pence.

The rate of VAT has been cut to 15%, for 13 months, so the government will only get 15 pence for every pound.

It's hoped that by making things cheaper it will encourage everyone to spend more money. If we spend more money in shops, it could help the economy improve.

Prime Minister Gordon Brown and Chancellor Alistair Darling
Prime Minister Gordon Brown and Chancellor Alistair Darling

But while the government hopes the changes will help the economy get better, other financial experts are worried.

The government will get less money than it had planned for after cutting VAT, so will have to borrow the cash it needs to pay for all things it wants to do like schools and hospitals.

Eventually it will have to get that money back somehow, and has said it will make rich people pay higher taxes in future years.


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