The idea of the VAT cut is that it makes you spend money. A tax cut else way, say on income tax, puts more money in people's pockets, but they might not spend it. With a VAT cut, you have to spend money to actually benefit.
It's all too get people spending, which is the stimulus of our economy. The sterling is generally too strong for us to be successfull as an export economy, so most of the jobs are based on our own people spending, rather than other nations buying our stuff.
This means that when people stop spending, and start saving, which they are, firms start lowering production, and cutting jobs, making people more worried and spending even less, in case they lose their jobs. It's a vicious cycle, this VAT is the best that they could come up with, its not ideal, but there really is nothing else that can be done.
With all that said, this would be the perfect time to join the Euro. The Euro is stronger than the pound, meaning prices of imported goods will drop. The government's reason for not joining the Euro last time was that our trade cycles were out of sink, and the rest of Europe was in a recession whilst we weren't... this is no longer the case, and everyone's in a recession, what reason do they have now?
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