UK 'to spend way out of downturn'

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With the economy sliding towards recession, the Chancellor said he would re-channel public spending into projects that would spur growth.

Official figures are expected to confirm this week that the economy is shrinking for the first time since 1992.

Business Secretary Lord Mandelson admitted that the contraction was inevitable, adding that it was impossible to say how long it would last.

But despite increasingly tight public finances, exacerbated by declining tax revenues, Mr Darling pledged to press ahead with spending on major projects that the country needs.

Citing John Maynard Keynes's dictum that governments should spend their way out of an economic downturn, Mr Darling said expenditure would be focused on areas that "make a difference".

"At a time like this, it would be wrong to start taking money out of the economy, in terms of cutting back on spending, in terms of tax," he told The Sunday Telegraph.

"You do not do this when an economy is slowing down.

"Much of what Keynes said still makes sense. You will see us switching our spending priorities to areas that make a difference - housing and energy are classic cases where people are feeling squeezed. They expect the Government to help them. We'll do that."

The strategy will necessitate taking on more debt, as the Chancellor has already signalled he is ready to do. It secures costly new programmes like a new nuclear deterrent, London's £16 billion Crossrail project and the £9.3bn 2012 Olympic games.