Darling fine-tunes recovery plan

The chancellor is spending the weekend putting the final touches to an economic plan expected to include tax cuts and big public spending increases.

The measures, designed to revive the flagging economy, are to be announced in Monday's pre-Budget report.

Alistair Darling is expected to say tax cuts will only be short-lived, and taxes will have to rise in the future.

The Liberal Democrats are urging the government to consider lending directly to businesses to help the economy.

Reassuring the markets

It is thought the chancellor will say his recovery formula will leave Britain with a £100bn debt that the country will have to pay back later in the form of higher taxes.

"The last time a chancellor had to give advance warning of tax rises was under the Tories in 1993"

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Analysis: Crunch time for Darling

Other measures expected in the package are help for people in mortgage arrears and loans for small businesses.

David Coats from The Work Foundation, an independent research consultancy, said the chancellor was right to increase government spending - but it must be focused.

He told BBC Radio 4's Today programme: "You need this stimulus to be timely, targeted - on those people who'll spend the money - and it's got to be temporary."

But Jill Kirby from right-wing think tank the Centre for Policy Studies warned against a "reckless expansion" of the public sector, which would not help to solve the economic troubles.

"There are parts of the public sector which can be shrunk. And we all know how much has gone into the cost of staffing large areas of the NHS which are not productive and not on the front-line of services," she said.

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"The same applies across most of our public services in that money is being sucked into bureaucratic layers of administration. Business will function a lot more effectively without most of it."

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 Lib Dems say the government should lend directly to businesses in the short term through the Post Office or local authorities, or by creating an entirely new government-owned bank.

In the longer term, they want the government to put banks on a stronger footing and regulate them in a way that allows a return to prudent lending to small businesses and individuals.

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