Page last updated at 12:11 GMT, Saturday, 30 August 2008 13:11 UK

Darling warns of economic crisis

Chancellor Alistair Darling
Alistair Darling is under pressure to come up with solutions to the crisis

The UK is facing its worst economic crisis in 60 years, Chancellor Alistair Darling has admitted.

He told the Guardian newspaper that the economic downturn would be more "profound and long-lasting" than most people had feared.

Using strong language, Mr Darling acknowledged voters were angry with Labour's handling of the economy.

Shadow chancellor George Osborne said Mr Darling had "let the cat out of the bag" about the state of the economy.

The chancellor admitted the government had "patently" failed to get its message across that it understood people's concerns about rising living costs and growing job insecurity.

He said that voters were "pissed off" with Labour's handling of the economy, a key issue at the next election, and said it was "absolutely imperative" that ministers communicated their intentions better.

This coming 12 months will be the most difficult 12 months the Labour party has had in a generation, quite frankly
Alistair Darling

"This coming 12 months will be the most difficult 12 months the Labour Party has had in a generation, quite frankly."

When asked why he had been so frank, Mr Darling told BBC News: "It's important I tell people in this country that we, along with every other country in the world, face a unique set of circumstances where you've got the credit crunch coming at the same time with high oil and food prices."

But he said the current government differed from past ones because it is prepared to "take action to help the economy and to help people get through this difficult time".

He cited the rescue package provided for Northern Rock and tax rebates due at the end of next month as examples of assistance offered by the government.

How the government is trying to kick-start the housing market

Ministers are expected to announce a package of measures next week to kick-start the moribund housing market.

The chancellor has been criticised for sending contradictory signals over possible measures to assist homebuyers, particularly the prospect of a temporary suspension of stamp duty on home purchases.

In a wide-ranging Guardian interview, Mr Darling said Labour had to rediscover its "zeal" if it wanted to be re-elected for a fourth term.

But he admitted that was "a huge problem for us at the moment".

Mr Darling hinted at tensions within Gordon Brown's Cabinet, saying there were "lots of people who'd like to do my job" and "no doubt, actively doing it", although he appeared to rule out an autumn Cabinet reshuffle.

The chancellor's remarks come after a summer of unremittingly bad economic news.

House prices are falling at their fastest rate in 18 years, leading to fears of a wave of repossessions.

Mortgage lending has slowed dramatically due to the credit crunch while key indicators have suggested that the economy could be poised to go into recession.

Vince Cable reacts to the Chancellor's assessment of the UK economy

The economy showed no growth in the second quarter of the year while building firms and retailers have laid off thousands of staff amid fears that the economy will deteriorate further.

A member of the Bank of England's Monetary Policy Committee said on Friday that radical action was needed to ensure the crisis did not get worse and warned of a sharp rise in unemployment.

Mr Osborne said: "Who is telling the truth at the top of government?

"The prime minister says the economic situation isn't as bad people think and that Britain is well placed to weather the economic storm but the chancellor says we are at a 60-year low.

"Gordon Brown has briefed out stories that he has an economic recovery plan all worked out, meanwhile the chancellor says the downturn will be more profound and long-lasting than people thought.

"It's not clear whether Alistair Darling meant to tell us the truth about the mess 10 years of a Labour government has left our economy in, but he has certainly let the cat out of the bag."

He has come out and been frank, but I have no sympathy and nor I hope has anyone else!
James, Surbiton

Liberal Democrat Treasury spokesman Vince Cable said the government had been inconsistent with its message.

"Until very recently there was no problem, there was a state of denial, Britain was the strongest country in the western world, any problems we had were from overseas," he said.

"Now suddenly we've lurched into Apocalypse Now, the return of the Great Depression."

The Treasury said the chancellor's comments were "entirely consistent" with his previous statements.

A spokesman said: "These are the same difficult economic circumstances that every other country in the world is having to deal with.

"But with employment levels near record highs, interest rates that are historically low and the past decade of rising incomes and job creation, the UK is well placed to deal with this."

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