Chancellor of the Exchequer Alistair Darling revealed VAT will be cut to 15 per cent from 17.5 per cent.
The majority of products used in the construction industry require VAT to be paid.
The cuts will come into effect from 1 December, before being restored to the 17.5 per cent level at the beginning of 2010 when the Government expects economic recovery to start.
Mr Darling said the cut was equivalent to giving £12.5 billion back to consumers and urged businesses to cut prices in line with the VAT reduction.
However the Construction Products Association said that while it is welcome that product prices will be lowered, the main concern in the current climate is for public sector work to be fast tracked.