Page last updated at 10:43 GMT, Friday, 21 November 2008

Crunch time for Darling

By Ben Wright
BBC political correspondent

Back in the summer, before deflation, recapitalisation and slump peppered the political vocabulary, Alistair Darling said the economic conditions facing Britain were "arguably the worst they have been in 60 years".

Alistair Darling and Gordon Brown at the 2007 PBR
Mr Darling will outline plans to boost the economy

At the time his diagnosis did not quite ring true.

But when the chancellor stands up in the House of Commons on Monday afternoon to deliver the pre-Budget report (PBR) he will present the government's prescription for an economic crisis that is now obviously very serious.

Recession is imminent, unemployment is climbing, house prices are falling, the banks are not lending, tax receipts are plummeting and government debt is mounting.

At his pre-PBR power-point presentation, the sage of the credit crunch, Vince Cable, chilled journalists with his gloomy graphs.

Labour confidence

The title of the show? "Stopping the slide into slump". It should be knockout for a government that back in the summer was pinned against the ropes.

But politics is a bizarre business. There is now chatter at Westminster of an early election and Labour MPs are walking with a confidence they have not had for months. So what is going on?

Whether or not the fiscal stimulus proves to be economic Viagra, it has certainly invigorated Westminster

Monday is a massive moment for the government and the economy.

Keynes is back in fashion and the chancellor is expected to respond to the downturn with both barrels, firing tax cuts and higher public spending at the flagging economy.

It is called a fiscal stimulus and the government will hope it hits the spot.

It needs to. In Mr Cable's view, the economy is now on a "war-footing" and he believes it needs a cash injection of at least 30bn.

Unfunded cuts

The problem for the government is that it is not awash with money. Borrowing is at a 10-year high.

In the first seven months of the year, government debt was already up to the Treasury's 43bn target for the whole year.

On Monday Alistair Darling will be under big pressure to spell out how the public finances can recover. And politically, this is where the argument kicks off.

Nick Robinson and Hugh Pym discuss the pre-Budget report

The Conservatives have slammed the prospect of unfunded tax cuts paid for by further borrowing.

Their policy is now to slow the growth of public spending from 2010 and make prudence their pitch.

The government argues that the Treasury must borrow more now and that the coffers will be replenished when the economy recovers.

So there is a clear political divide between the two main parties about how to handle the downturn.

The Tories warn about a future Labour tax bombshell. The government accuses the Conservatives of being out of step with international opinion and of posing a threat to public services.

Whether or not the fiscal stimulus proves to be economic Viagra, it has certainly invigorated Westminster. Which is why talk of an election is back.

Labour strategists may calculate that early next year is as good as it gets. Gordon Brown has enjoyed being toasted in capitals as the man with a plan.

One recent poll put the Conservatives' lead over Labour at just three points.

With the economy in trouble the prime minister's line that it is no time for a novice may chime with the voters.

And there is the chance that the economy will look even worse in 2010, with longer dole queues and higher repossessions.

A great deal hinges on what effect next week's PBR has in the months ahead.

And, this is all happening on Labour's watch. So whenever the election is called, it's likely that all the parties will have the same Clinton campaign slogan pinned to their HQ walls: "It's the economy stupid!"

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