Page last updated at 21:31 GMT, Friday, 21 November 2008

Economy boost may mean pain later

Money
The government is set to reveal its new debt forecasts next week

The government is preparing to confirm that a huge and unplanned rise in government borrowing will have to be paid back in the years to come.

It comes as the chancellor is expected to announce spending rises and tax cuts in his Pre-Budget report on Monday.

"The chancellor has to tell the country how far we've gone into the red," said BBC political editor Nick Robinson.

BBC Business Editor Robert Peston said the chancellor will also have to say how the money will be paid back.

Mr Robinson said: "Next week the chancellor has to tell the country how far we've gone into the red. He's preparing to reveal that we'll soon be borrowing over 100bn - that's 11 noughts at the end.

Harsh truths

"A collapse in the tax the government receives from house sales and from the City of London means we're heading for an annual overdraft worth one twelfth of the country's annual income - a figure that will raise a few eye brows.

"It's not been seen since Denis Healey was chancellor - back in the 1970s - the last time Labour were in power."

BBC Business Editor Robert Peston said in his blog the chancellor will have to announce deferred tax rises and cuts in public spending, "to kick in when the economy has recovered a bit," perhaps in 2010 or 2011 - the year after the latest date of the next general election.


If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later

Gordon Brown

Mr Peston said in his blog: "I am certain that on Monday the chancellor will also announce a significant package of measures to stimulate the economy.

"These will include tax cuts and spending increases funded by extra borrowing, equivalent perhaps to as much as 2% of GDP.

"And the bulk of the tax cuts will be directed at those on lowest incomes, partly because they have the highest propensity to spend - for the good of the economy - and also for reasons of social justice."

The Tories have warned against tax cuts now leading to a "tax bombshell" later.

Experts have suggested failing to announce debt-reduction measures could lead to a damaging rise in government borrowing costs and a run on the pound, of the kind shadow chancellor George Osborne has been warning about.

The BBC understands Mr Darling will have to borrow massively over the next two years - equivalent to at least 8% of GDP, which adds up to more than 110bn per year.

Election speculation

Mr Darling is also expected to unveil help for small businesses hit by the credit crunch and is reportedly "infuriated" by the banks' apparent refusal to free up credit despite receiving a 37bn bailout.

According to stories in the Daily Mail and the Daily Telegraph, he is preparing to underwrite small business loans in his pre-Budget report and may also legislate to make the banks start lending again.

Downing Street refused to rule out such a move, but the prime minister's official spokesman declined to comment on the contents of the pre-Budget report, beyond saying it would include "help for small businesses to get them through this difficult period".

He said both Mr Darling and Mr Brown were determined to see banks and building societies fulfilling their commitments to lend to small businesses. He said the government wanted to work constructively with the banks and were "in dialogue" with them.

BBC's Nick Robinson and Hugh Pym discuss likely measures in the PBR

Speaking earlier Gordon Brown said: "If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later. You've got to act now so we avoid a worse problem."

Shadow Chancellor George Osborne has said a Conservative government would step in to guarantee loans made by banks and would even loan money directly to businesses as a "radical" last resort.

The Liberal Democrats have also said the government should lend directly to businesses, through the Post Office, local authorities or even by creating an entirely new government-owned bank.

Print Sponsor


RELATED INTERNET LINKS
The BBC is not responsible for the content of external internet sites


FEATURES, VIEWS, ANALYSIS
Has China's housing bubble burst?
How the world's oldest clove tree defied an empire
Why Royal Ballet principal Sergei Polunin quit

BBC navigation

BBC © 2013 The BBC is not responsible for the content of external sites. Read more.

This page is best viewed in an up-to-date web browser with style sheets (CSS) enabled. While you will be able to view the content of this page in your current browser, you will not be able to get the full visual experience. Please consider upgrading your browser software or enabling style sheets (CSS) if you are able to do so.

Americas Africa Europe Middle East South Asia Asia Pacific