Tax cuts and incentives - should we start spending again?

The government wants to get us spending again even though we have been told for the last few years that we're spending too much. We certainly have been getting mixed messages recently. No wonder we are feeling confused!

What has the government been trying to do?

The government, together with the Bank of England, is trying to kick-start our economy, and stop us descending into a deep recession, by getting us to spend more money on goods and services.

The way they're doing this is by:

Cutting interest rates

Traditionally, when the Bank of England cuts interest rates, loans and mortgages get cheaper so people borrow more, feel more confident and spend more.

However, this year it hasn't happened as it used to. The banks have generally not passed on the cheaper rates to homeowners and borrowers and they have made it much harder for people to take out a mortgage unless they have a deposit of at least 25 per cent of the property's value.

This is why they have had to cut rates to a 51-year low of just 2 per cent to try to get the banks to lend money cheaply and encourage us to borrow and spend again.

Cutting VAT

VAT is basically a sales tax. It's money that the government collects on goods and services that we buy.

By cutting it by 2½ per cent they hope that things will be a little cheaper (really only a little) and we will be more likely to buy.

Increasing family benefits

Families eligible for child benefit will get their 2009 increases three months earlier than expected - in January rather than in April next year.

What will you do? Are you encouraged to spend more, or will you try to save?