Preheat oven to 150 C / Gas 2. Grease a baking tray.
Add butter and sugar in a bowl and mix well until light and fluffy. Add the vanilla, food colouring, water and mix. Add the flour and mix well.
Roll out to 5mm on a floured work surface. Cut into festive shapes and place on the prepared greased baking tray.
Bake in the preheated oven for 25 minutes or until golden brown. Remove from the heat and cool on a cooling rack.
For the icing, sift the icing sugar into a bowl and gradually add warm water, whisking until icing becomes thick enough to coat the back of the spoon. Mix in the food colouring until well integrated. Allow to cool then use to decorate the cookies as desired.
If you want to be more festive add festive rice paper or your favourite Christmas decorations!