I'm going there and have Skype with credit.
Option I - Do I buy a local sim card and then log into Skype to make the call?
Option 2 - I've seen on Skype that there is 'Skype To Go' Is that using my UK sim and I pay for the call at UK rates?
Thanks all

Not sure about Madagascar but would imagine it to be similar to other parts of Africa or worse - the internet is often not stable enough for skype calls ... so have a back up plan too!
Kira

In my experince internet connection has been slow and unreliable. If others have found it better it would be most helpful to know where.
The rates by using Skype to call a landline in Europe are quite high. If I remember right, more then 3.-US$ a minute.
Much better you buy a local sim card from Orange. Oversea calls to Europe are surprisingly cheap. Check on the Orange website the tariffs.
Skype to go means you get a local telephone number that you dial, then you enter the number you want to call (in the UK in your case). I've used it before in a number of countries, but not in Africa. It's good because it relies on the local cell network, and not the internet (for you as end user, anyway). You can use a local payphone or anyone's phone, dial a local number, wait, then dial the UK number. You're charged from your Skype credit.
Yes, its known
Skype will deduct 97 cents from your credit per minute. Orange mobile will cost you 29 cents/minute for the same call to Europe.
You choose...
I would just try to use the wifi in your hotels if they have it then its free, I was able to make Skype calls in 2010 from certain hotels. Alternatively I had a number that I dialed which gave me discounted rates for international calls when in more remote areas with my local Orange SIM.