Chancellor Alistair Darling today warned there was “still uncertainty” for the UK economy but predicted a return to growth by “the turn of the year”.

Unveiling his Pre-Budget Report to a crowded Commons, Mr Darling said: “The task today is to secure the recovery and promote long term growth.”

He told MPs: “We need to invest in the skills of young people to prevent a lost generation of youth unemployment.”

Mr Darling said that while he was confident that the UK economy was “on the road to recovery, we can’t be complacent”.

The Government must continue to support the economy until recovery was established. “To cut support now could wreck the recovery. That’s a risk I am not prepared to take.”

Mr Darling said the PBR took place at a “critical time” for the economy and the country.

Governments across the world had taken co-ordinated steps to deal with the biggest financial crisis for over half a century.

In the UK the Government’s “action has reduced the impact of this downturn on families and businesses”.

He warned: “But there is still uncertainty. To promote growth we need to invest in the dynamic sectors of the future - in digital, bio and low carbon technology.

“I will announce measures to support these industries.”

Mr Darling said he would also announce measures to guarantee work opportunities for the young and halve the deficit over four years “in an orderly way, which does not threaten the investment vital for our future”.

The choice was between going for growth or putting the recovery at risk - a choice between “two competing visions”.

Mr Darling said as a result of actions taken to tackle the financial crisis there was growing evidence that global confidence was returning.

“As demand picks up abroad - as is already happening - British business will benefit.

“So I am confident that the UK economy will start growing by the turn of the year.”

There remained risks to recovery. Oil prices were volatile. “So while I am confident that the UK economy is on the road to recovery, we can’t be complacent. And we must continue to support the economy until recovery is established.”

Mr Darling confirmed that VAT will return to 17.5% on January 1, but ruled out any further increase.

The Time to Pay Scheme, allowing firms to defer tax payments, will be extended “for as long as is needed”, he said.

“Because firms continue trading, the likelihood of them paying the tax owed increases.”
In another measure aimed at helping businesses, Mr Darling said empty property relief on vacant premises with a rateable value of less than £18,000 will continue.

This would leave 70% of empty business premises exempt from the tax, he said.

Mr Darling also deferred the increase in the small company rate of corporation tax, leaving the 2010 rate unchanged for 850,000 firms “helping them until recovery is secured”.

Turning to housing, the Chancellor said as a result of Government help the repossession rate was around half that of the early 1990s.

But with unemployment set to rise further it was necessary to extend support for mortgage interest payments for those who lose their jobs for another six months.

“There will be a cost to this. But the cost to families of losing their home would be immense. It would be a false economy for the country.

“The more successful these measure are, the lower the cost will be to the Exchequer.”