The reduction in the rate of VAT unveiled by chancellor Alistair Darling in the pre-Budget report has come into effect.

The rate has been cut from 17.5% to 15% in a bid to encourage customers to spend more and will remain at this level until January 2010.

It is thought the move will save the average person £170 a year but many retailers have complained over the cost of producing new price lists as a result of the change.

The cut means retailers will be able to reduce their own prices without having to lose out on profit although many stores are slashing prices anyway to woo cost-conscious consumers.

The reduction in the rate will be most notable in bigger-ticket items such as cars or electronics.