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Sunday, 30 September, 2001, 10:06 GMT 11:06 UK
Spending plans are safe - Brown
UK Chancellor Gordon Brown
Mr Brown believes public finances are in good shape
Gordon Brown has said the government's spending plans for public services will survive the global economic downturn.

The chancellor said the government's discipline in previous years had left public finances in good shape to meet Labour general election commitments.

Current plans involve a pledge to spend an extra 50bn in the next two years, allowing a big increase in funding for schools, hospitals, policing and transport.

Mr Brown told GMTV's Sunday programme: "These are spending plans that we will maintain because they are right - not just for social justice and communities that depend on healthcare and better schools, they are right for the economy and they are right for our public services generally.

"It is because we have taken tough decisions in the past that we are able to meet the difficulties as they arise as a result of what is happening in the world economy while at the same time raising expenditure for health and education."

Growth slowing down

There are fears that the slowdown will increase further with the uncertainty following the 11 September suicide attacks in the United States.

Mr Brown warned fellow ministers on Thursday that the cost of possible military action meant there would be no extra money available, above that already allocated in the current three-year spending plan.

But Prime Minister Tony Blair told the BBC's Breakfast with Frost that although the costs of the war on terrorism were not yet known, the spending increases were already budgeted for.

Mr Brown's rule of balancing the budget covers the whole economic cycle, so it could still be fulfilled if he borrowed money during the slowdown part of the cycle and then repaid it when the economic upturn comes.

But there were widespread doubts, even before the current crisis, about whether the current rate of spending increase could be sustained in the longer term without a rise in taxes.

Military action

The Treasury is concerned not only by the cost of military action, but also that it could face a smaller tax-take than expected as the UK economy slows down.

However, Mr Brown's plans were based on the assumption that the UK economy would grow by around 2.5% this year and next.

A recent report by the International Monetary Fund suggested that, although the UK would not be as hard-hit as some other countries, it would be unlikely to grow by more than 2% this year.

The UK economy has already been showing signs of strain, with industrial output falling while consumer spending has been strong.

Comprehensive Spending Review

The Prime Minister has emphasised the need for consumers to maintain their current spending plans, but no one knows how badly consumer confidence might be affected by the events in America.

Two recent surveys of UK consumer confidence have suggested that it was falling sharply.

Details of departmental spending plans in 2004-5 and 2005-6 will be published in the Comprehensive Spending Review next summer.

BBC political correspondent Jonathan Beale said the issue was of concern this year because the contingency fund had already been used by a combination of post-Hatfield rail crash repairs, foot-and-mouth disease and also military presences in the Balkans and Sierra Leone.

 WATCH/LISTEN
 ON THIS STORY
The Chancellor of the Exchequer Gordon Brown
speaks to Edward Stourton on the Today programme
See also:

28 Sep 01 | UK Politics
Brown warns of spending squeeze
27 Apr 01 | UK Politics
Brown warned over public spending
07 Mar 01 | Budget 2001
Strong economy leaves scope for tax cuts
27 Sep 01 | Business
UK consumer confidence falls
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