Government accused over recession

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Official figures showed that the economy shrank by 0.4% in the third quarter of this year, meaning that the UK is in the grip of the longest recession since records began.

Mr Osborne said that Britain had been first into the recession, and it now appeared it would be last out.

Despite massive injections of taxpayers' money to support the banks, the credit crunch was continuing, with businesses across the country unable to access normal loan arrangements.

The shadow chancellor revived Conservative calls from earlier this year for the creation of a national loan guarantee scheme, arguing that Government schemes had provided help to only a handful of companies.

And he dismissed as "nonsense" Prime Minister Gordon Brown's claims that Tory policies would have pushed Britain deeper into recession.

Far from pump-priming the economy, the Government had undertaken little discretionary fiscal stimulus beyond the temporary cut in VAT - which Tories believe was ineffective - and was on course to underspend its Budget plans by £10 billion, he said.

Mr Osborne told BBC Radio 4's Today programme: "We said right from the beginning last autumn that credit was the problem. There was a lack of credit in the economy, and there is still a shrinking amount of credit in the economy.

"It means that businesses can't get access to basic banking services, so the credit crunch continues."

And he added: "There is also a catastrophic loss of confidence in the economic leadership in this country."