Page last updated at 14:18 GMT, Monday, 27 October 2008

Brown defends higher borrowing

Brown defends government investment

Gordon Brown has defended his plans to increase government borrowing in order to tackle the economic downturn.

The prime minister told business leaders it was "responsible" for government to boost spending at this time to "speed up economic activity".

Opposition parties have attacked the current levels of debt, saying Britain is inadequately prepared for recession.

Shadow chancellor George Osborne said government borrowing levels were already "out of control".

Leading economists have also criticised the government over its spending plans and called for tax cuts instead.

'Misguided' strategy

In a letter to a Sunday newspaper, a number of economists warned against an expansion of government spending as a way of stimulating the economy.

They described a focus on public works projects and higher spending as "misguided and discredited".

The latest quarterly public debt figures hit a record £37.6 billion - higher than the whole of the previous year.

The responsible course is to borrow now to maintain growth and output
Gordon Brown

In a speech in London, Mr Brown said fiscal policy would be used to kick-start the economy so as to "help people through difficult times".

However, in a change to his planned text, Mr Brown declined to say explicitly that borrowing would rise, stating instead that it was "right and responsible" to maintain "investment" at the current time.

But he said that when the economy begins to recover and tax revenues increase, "borrowing" levels as a share of economic output would then come down.

Mr Brown defended government measures to support the faltering economy including help for small businesses and homeowners to stave off the threat of repossessions.

"I can see why people are insecure and worried about their future," he said.

'Comprehensive solutions'

Outlining what he said was a "comprehensive" set of policies to help the UK through its current economic problems, he said the economy had the government's "undivided attention".

"We have to look at all the areas where we can move the economy forward and restore confidence in the banking and financial system."

He said he would do "whatever is necessary" to ensure that banks swiftly moved to increase lending to businesses and homebuyers.

Mr Brown's remarks came against a backdrop of further falls on global stock markets, with the FTSE 100 index of leading shares down nearly 4% in London.

And the Conservatives said that whatever action Labour took now could not hide the mistakes made in the past.

Gordon Brown is a man with an overdraft not a man with a plan
Shadow chancellor George Osborne

Mr Osborne said higher borrowing was not a "strategy" for economic recovery but an inevitable consequence of the poor state of the public finances.

"What they are talking about is borrowing out of necessity not out of virtue," he said.

"Government is being forced to borrow. Gordon Brown is a man with an overdraft not a man with a plan."

Addressing responses to the downturn, Mr Osborne said ministers could look at the "timing" of big infrastructure projects but said spending on public works was not a "solution" to the situation.

For the Lib Dems, Treasury spokesman Vince Cable said it was "necessary" for borrowing to go up in a "period of recession".

But he added: "What is important is that there is a clear plan from the government as to how the public finances are to be returned to balance."

Welfare reform

Mr Brown's speech came on the same day that incapacity benefit is being replaced by a new allowance aimed at getting one million people off benefits.

Mr Brown said welfare reform would be intensified despite the economic climate, saying that it would help people into new jobs.

"The very moment in an economic downturn when we need to invest in human capital is no time to slow down welfare reform," he said.

Over the weekend, Mr Brown paid a brief visit to Glenrothes in Scotland as part of a by-election campaign and made predictions food and fuel bills would begin to come down next year.

He also hinted falling oil prices could lead to further co-ordinated interest rate cuts.

But while Mr Brown said on Monday that action on monetary policy did have a "role to play", it was not "up to him" to tell the Bank of England what to do regarding rates.

Mr Osborne said "everyone in the country" wanted to see rates come down but that it must be up to the Bank of England to decide the timing of rate decisions.

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