Brown defending higher borrowing

BBC News 27 October 2008

Gordon Brown is defending his plans to increase government borrowing in order to tackle the economic downturn in a speech later.

The prime minister is telling business leaders it is the right time to boost demand with government spending.

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

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.

In his speech in London, Mr Brown will say fiscal policy will be used to kick-start the economy and a temporary increase in borrowing is the right strategy to pursue.

He is expected to say: "We will and can allow borrowing to rise to help restore demand and to come to the aid of workers, businesses and homeowners.

"We have already combined targeted support through the tax system - such as the temporary increase in stamp duty thresholds, the freeze in fuel duty and the £120 tax rebate for basic-rate taxpayers - with a commitment to maintain the necessary government investment to enable Britain to benefit from the upturn.

"Through our actions we are both supporting families and businesses now and helping them prepare for the future.

"That is why the responsible course is to borrow now to maintain growth and output and to reduce borrowing as a proportion of GDP as the economy recovers and tax receipts rise again."

Welfare reform

The speech comes on the day incapacity benefit is replaced by a new allowance aimed at getting one million people off benefits.

Mr Brown will say welfare reform will be intensified despite the economic climate.

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

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.

"Now inflation is actually coming down over the next few months and that will mean that it gives scope to all the monetary authorities, including the Bank of England, round the world to make a decision about interest rates," he told the BBC.