Britain's Brown defends plan to keep economy afloat

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(Agencies)
Updated: 2008-11-23 21:37

LONDON -- British Prime Minister Gordon Brown defended his plan on Sunday to inject billions of pounds of borrowed money into the economy to try to stave off a deep recession, saying failure to act could cause permanent damage.

Brown's finance minister Alistair Darling will on Monday unveil a package of tax cuts and extra public spending expected to total up to 20 billion pounds ($29.70 billion) in an attempt to keep Britons spending and stop the economy seizing up.

The centrepiece will be a temporary cut in sales tax paid on many goods, several newspapers reported on Sunday.

They said the tax, known as value added tax or VAT, could go down to 15 percent from 17.5 percent for one or two years, giving a pre-Christmas boost to consumers' spending power.

Britain, buffeted by the global financial crisis, is on the verge of recession, with house prices slumping, unemployment rising and manufacturing output shrinking.

The cash injection will be paid for with borrowing, which could send Britain's budget deficit ballooning to around 120 billion pounds in the next financial year.

Opposition Conservatives say the government's plan is unaffordable, risky and unlikely to work.

"Doing nothing is not an option," Brown said in excerpts of a speech he will give at a business conference on Monday. "We need timely action now to prevent permanent damage."

The package is a gamble for Brown, whose handling of the financial crisis has lifted his flagging popularity ratings. His hopes of winning the next general election, due by mid-2010, may depend on the recession being relatively short and shallow.

CONSERVATIVE LEAD

An opinion poll published in the Sunday Mirror showed the Conservatives with an 11-point lead over Brown's Labour Party, contradicting a run of recent surveys which had seen Labour fighting back to within about three points of the Conservatives.

The upturn in Brown's fortunes led to reports last week -- dismissed by Brown -- that he might call an election in June.

If Darling cannot persuade investors that Britain will close the budget gap in future years, the pound, which has slumped against the euro and dollar in recent weeks, could slide further and the government's borrowing costs could rise.

Darling is expected to soothe the market by announcing plans for deferred tax rises and public spending curbs.

Brown argues that a fiscal boost will be most effective if it is coordinated across Europe. A European Union stimulus package to be announced next Wednesday will total 130 billion euros ($162.8 billion), according to a German minister.

Britain's package is expected to include tax cuts for low earners, tax relief for small firms, efficiency savings and help for home owners struggling to pay mortgages. Darling is also expected to set out plans to speed up infrastructure projects.

Darling, conceding that Britain was moving into recession, promised on Sunday that every household would get support now.

"Worried mortgage holders will get help and I shall do what I can to help those who lose their jobs. And I will state exactly how we intend to pay for the help we are providing now," he wrote in the Sunday Mirror newspaper.

The Conservatives' Treasury spokesman Philip Hammond told BBC radio the Conservatives backed specific, funded tax cuts but opposed Brown's plan for "a give-away budget of tax cuts, funded by borrowing which has to be clawed back through higher taxes a year or two down the line."