Brown defends 'iron chancellor' image

Gordon Brown: UK can weather economic storms

In his speech to the Labour Party conference, Gordon Brown claimed that his spending plans would not be affected by the repercussions of the US terrorist attacks. The BBC's Dharshini David has been examining his arguments.

In June, at the start of Labour's second term in office, UK Chancellor Gordon Brown was presiding over a bulging public purse.

And even though economic growth was showing signs of moderating, he could still afford to pump billions of extra pounds into areas such as health and education.

But this was before 11 September. The Treasury's coffers have to cope with the chance of a sharp economic slowdown - and possibly the cost of military action.

At the time of the last Budget, Mr Brown was forecasting that the public finances would be in surplus to the tune of £6bn, before falling into deficit in the succeeding three years.

That allowed for public spending to rise by almost 4% per year, before allowing for inflation.

These plans allowed for spending on health and education to rise by at least 5% per year.

These plans fitted within his own fiscal rules - that the government can only borrow to finance investment (or capital) spending, and that the stock of public debt should not rise above 40% of total economic output, or GDP.

Spending up, revenue down

The public finances now face a potential two-pronged attack.

First, prolonged military action could push up defence spending substantially.

And second if the economy slows down further in the aftermath of the terrorist attacks, then both public spending and revenue could suffer.

In the event of a slowdown, company and income tax tend to fall as profits and employment suffer. Conversely, spending on social security benefits tends to rise.

That could make it difficult for the chancellor to stick to his generous spending plans

Resilient economy

On Monday, Mr Brown's task was to allay fears about an impending slowdown, and to clarify whether he would still stick to his generous spending plans.

He acknowledged that the outlook was extremely uncertain, but that thanks to the various policies he had enacted in recent years, Britain was "in a better position today to withstand the ups and downs of the economic cycle."

Certainly, at a time when many economists are predicting recession for the eurozone and America, hardly any are doing so for the UK.

Mr Brown reaffirmed that he will stick to his current spending plans, and that there would be no handouts for government departments.

Unlike previous chancellors, he would not be tempted to spend his way out of an economic slowdown.

There was a warning to government departments that they could not expect handouts in the next spending round

Uncertain future

For many observers, these statements are reassuring, but results could prove difficult to deliver.

As Mr Brown admits, no one know how much the global or UK economy could slowdown - or how much any military action will cost.

But with the healthy shape of the public finances in previous years, he does have a few billion pounds to play with.

During the last economic slowdown, the public deficit rose to £50bn - its unlikely to do so again this year or next.

And even if the public finances fall into the red this year - and remain there for the next few years, it may not jeopardise the chancellor's fiscal rules, for they are measured across the whole economic cycle.

But, for the moment, there are too many uncertainties.

For all his soothing words, Mr Brown could still find himself exercising his juggling skills in the next couple of years to make the public finance numbers add up - and retain his reputation as the "iron chancellor".