Brown defends rise in borrowing

Gordon Brown told MPs the UK would have to increase borrowing

Chancellor Gordon Brown has defended his decision to borrow an extra £10bn, insisting the move is affordable.

The Iraq war and a lower than expected rise in average earnings accounted for the borrowing forecast increasing to £37bn, he told BBC Breakfast.

The Conservatives have accused Mr Brown of creating more bureaucracy rather than improving services.

Tory Shadow chancellor Oliver Letwin said there was "very little sign" that extra spending was improving services.

'Affordable'

In his Budget last April, Mr Brown had forecast borrowing of £27bn in 2003, a figure which has now risen in Wednesday's pre-Budget report to £37bn.

He said in April that borrowing in 2004 would be £24bn, but has now revised that sum to £31bn.

On Thursday, the chancellor said the public realised that the important thing about borrowing was being able to afford the repayments - something Britain could do.

DEBT PREDICTIONS 2003/04: £37bn (up £10bn) 2004/05: £31bn (up £7bn) 2005/06: £30bn (up £7bn) Figures show Mr Brown's current predictions compared with his forecasts in April 2003 Pre-Budget report: Key points Brown's borrowing bothers papers

"The right time to borrow is at the time when there is world downturn but it's also right to borrow when you need to invest in the future," he told Breakfast.

"You have got to invest to get returns."

British borrowing and debt was still lower than most other countries, he argued.

Giving reasons for the borrowing rise, he said: "One is we had to spend more in Iraq and the war against terror. That was unexpected.

"The second thing is, average earnings have not been rising as fast, that is partly a good thing for the economy but it cuts tax revenues."

Reform call

This year's budget deficit will be 3.4% - above the 3% allowed under EU rules.

But Mr Brown said he had told the EU "that if the choice is between the stability and growth pact and what is right and good for Britain, I am choosing what is right and good for Britain".

Mr Letwin said government borrowing had soared above Labour's election pledges, adding that the Conservatives' alternative was "the fundamental reform of the public services".

Workers will get tax-free money for childcare

"We want to get some bang for the buck," he told BBC News Online.

Mr Brown's answer to failing schools and hospitals was "more bureaucracy, targets, plans and taxes," Mr Letwin said.

He accused Mr Brown of allowing bureaucracy to grow by 60% in the last seven years.

Increased spending of 37% in the NHS which had brought only 5% more treatment, he said.

Opportunities

Wednesday's pre-Budget report included a series of measures aimed at widening childcare provision and hauling more young people out of poverty.

Despite the larger than expected borrowing levels, Mr Brown told MPs the UK economy was strengthening and would meet his growth forecasts this year.

The chancellor said it was time for the UK to capitalise on a stable and growing economy "to seize the opportunities of the growing world economy".

He said the economy would meet his growth target for 2003, with growth of 2.1% - inside Mr Brown's 2% to 2.5% range.

Mr Brown said his growth targets for 2004 and 2005 - of between 3% and 3.5% - also remained in place.

The chancellor also pledged efforts to bring more children out of poverty, with a series of new measures to widen childcare opportunities.

Targets

He announced plans to allow employers to offer workers on any income a tax-free £50 a week for childcare, and the creation of 1,000 children's centres for pre-school children and their parents.

He also said he would be increasing the child element of child tax credit by 13%, the equivalent of £3.50 a week

He put up a staunch defence of the government's "New Deal" programme, which he said had helped two million people to find work.

Liberal Democrat Treasury spokesman Vince Cable accused Mr Brown of piling more "gimmicks" on an over-complicated tax system.

And Mr Brown had dodged the unfairness of the poorest 20% in Britain by paying out 42% of their income in tax when the richest paid just 2% more than that, he added.