VAT is to increase from 17.5% to 20% in January, announced Chancellor George Osborne in the emergency Budget.

Corporation Tax will be cut next year to 27% and by 1% annually for the next three years, until it reaches 24%. The small companies' tax rate will be cut to 20%.

It was also announced that from April 2011 the threshold at which employers start to pay National Insurance will rise by £21 per week.

Regarding Capital Gains Tax, it was announced that from midnight higher-rate taxpayers will pay 28% on their capital gains but the rate remains at 18% for low and middle-income savers. The 10% rate for business owners will be extended to cover the first £5m of gains, up from £2m.

Mr Osborne said Britain's record peacetime budget deficit would be eliminated within five years - faster than the previous Labour government was planning.

The Chancellor predicted that the UK economy will expand at a slower rate than stated by Alistair Darling in his final Labour Budget in March. The forecast for 2011 is now for 2.6% growth, down from 3.25%.

“The Chancellor faced two challenges in today’s Budget: delivering a clear plan for deficit reduction and setting the stage for business to lead the UK’s economic recovery,” said David Frost of the British Chambers of Commerce.

“We believe that the government’s decisive moves to cut the deficit will have positive effects on business and investor confidence. Even more importantly, the Chancellor’s message that Britain is ‘open for business’ will be welcomed by companies the length and breadth of the country.”