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Brown's £100bn gamble to save economy
Paul Waugh, Deputy Political Editor27 Oct 2008
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GORDON BROWN today vowed to spend his way out of recession.
Opening the way for government borrowing to soar towards £100billion, the Prime Minister signalled that his own "golden rule" on debt would be torn up to allow public spending to increase.
In an attempt to outflank David Cameron, Mr Brown suggested that bringing forward public works would boost jobs at a time when the private sector was suffering.
Government debt is soaring at the fastest rate since the Second World War, but Mr Brown claimed that increasing borrowing in the short-term was the most "responsible" way of helping the economy. The Treasury borrowed £37.6billion in the first six months of the financial year alone and some experts think it will treble by April.
Sterling was down sharply again today, losing four cents overnight to 1.54 against the dollar and was set for further falls amid speculation of interest rate cuts and continuing worries over the depth of a recession. On another turbulent day in the City the FTSE-100 index opened down 208.66 points at 3674.7, a fall of more than five per cent, wiping nearly £50 billion off the value of London's leading shares.
It followed heavy losses in Asia this morning over mounting fears the global economy is sliding into recession.
The Bank of England is under strong pressure to slash interest rates - possibly to as low as zero - after Mr Brown hinted for the first time yesterday that he wanted aggressive cuts in loan costs for homeowners and businesses.
Speaking to a City audience, Mr Brown defended his plans to give Britain's economy a shot in the arm by using public spending to boost demand. But he also said he expected debt to come down over the long term.
"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," he said.
"We will and can allow borrowing to rise to help restore demand and to come to the aid of workers, businesses and homeowners," Mr Brown added.
Official data showed last week that the British economy had shrunk for the first time in 16 years - and by a much greater margin than experts had predicted.
Labour believes that it can put "clear red water" between itself and the Tories by winning public approval for higher spending to stop the recession turning into a depression.
Mr Cameron has repeatedly attacked Mr Brown for increasing borrowing during the good times and failing to set aside cash for a downturn.
Chancellor Alistair Darling is also set to announce this week that he will tear up the Treasury's 10-year-old "golden rule" that it would borrow only to invest over an economic cycle. The Prime Minister and Mr Darling are set to fasttrack major state-funded housing, defence, transport and energy projects to try to kickstart the economy.
But the plan, which is based on the philosophy of economist John Maynard Keynes, faced criticism from experts today. Sixteen leading economists, including those advising Lloyds TSB and the Ernst & Young Item Club, warned that the proposals were " misguided".
"Public expenditure has already risen very rapidly in recent years and a further large rise would take the role of the state in many parts of the economy to such a dominant position that it would stunt the private sector's recover once recession is past," an open letter from the economists said. "It is inevitable that government expenditure and debt naturally rise in a recession, but planned rises in government spending are misguided and discredited as a tool of economic management."
Shadow foreign secretary William Hague warned that Britain was entering its most severe downturn for years with a higher proportional national debt than Uganda or Nicaragua.
"We are going into the recession in one of the worst-prepared states of any of the developed countries, certainly of the G7 countries," Mr Hague said.
It emerged today that the Chancellor will use his annual Mais lecture on Wednesday to make clear he will dump Labour's borrowing rules in the coming pre-Budget report next month. Mr Darling-has made plain he wants to bring forward public spending planned for 2010/11, the final year of his three-year spending plans.
Mr Brown made his first comment on interest rates yesterday, suggesting he wanted bigger cuts to add to the emergency half point reduction this month.
"Now inflation is actually coming down over the next few months 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. I think over the world, you will see people responding to this lower inflation."
He added that it was time to get household bills falling. "After this set of gas and electricity bills, the falling price of oil should be reflected in gas and electricity bills in the next round. And it also means of course that we know that food prices have been coming down so the impact on people's standards of living has been all from the oil price and from the food price ... I hope that the price of these items will come down as a result of the action that's been taken."
The Prime Minister will discuss the crisis with German chancellor Angela Merkel in talks at Downing Street on Thursday.
It comes amid intense international discussions ahead of a summit of the leaders of the world's biggest economies in Washington on 15 November.
Reader views (38)
How Gordon Brown can tell us that Britain is better placed than most to ride the economic storm is unbelievable. We are almost 'bankrupt' at a time when we should have been like Norway with a kitty for the bad times - derived from Oil.
This man has never faced up to reality and with regard to his favourite phrase - Prudent - when he was Chancellor - I consider that he was as incompetent then as he is now as Prime Minister. He should be voted out of office post-haste.
He should be thinking about the good of the Country at this time but all he can think of is his job - I do not consider him fit for purpose and shudder to think what is going to happen if he is left to borrow willy nilly.
Pensioner's in Australia have just been given a $35 a week increase to help them during these difficult times -our state pension is a joke and with increasing inflation has already decreased in real terms.
Lets have an election now before Gordon does any more
damage.
- Ann, Fife, Scotland, 28/10/2008 14:50
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Gordon announced nothing new in the way of publicly financed capital projects, they were all previously announced, the only news(unsuprisingly)is the Government will have to borrow more to continue with them, the alternative is to abandon them. Any suggestion that slow moving projects like these are an answer to the threat of rising unemployment and thus a good way to tackle this recession can be discounted by even the most cursory examination of Japan's "lost decade".
It was difficult not to laugh watching Gordon explain how this increased borrowing is a temporary aberration and pay-back will occur when the upturn comes. We have just come to the end of 14 years of upturn, remember how the man who boasted of having done away with "boom & bust" spelt it out; "56 quarters of uninterrupted growth".
Just how much did we have in the piggy bank after having paid off Government borrowings during this extended upturn, err, none. Nope, we had no cash reserve instead we had an overdraft, commonly referred to as the Public Service Borrowing Requirement.
Gordon's only strategy for dealing with this recession is to continue in denial about any responsibility for it and to rack up as much debt as possible leaving it for someone else to clear up.
- Robert, Dumbarton, 28/10/2008 05:44
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Hugh, he's borrowing it from you. The tax payers of the UK will be paying this back for generations because Brown spent all the cash that should have been paying down the Government debt over the recent good times. The strategy at times like this is to spend and in good times one should save. The trouble is that Labour can only think of spending on schemes that need Government jobs and which come with index-linked pensions. The rest of you unfortunately, will get screwed.
- Ian, Vancouver, Canada, 28/10/2008 01:08
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Bully Brown has achieved the opposite to his aims.Instead of taking children out of poverty he is dragging adults into it.
But this was his agenda all the time. Take off them everything they have ever worked for as long as he and his past and present cohorts are financially safe.
But in his words "He is getting on with what the people of this Country want him to do"......Who are these people?
- Ernest, Southport, 27/10/2008 22:20
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The man is a fool
- Roger Slade, Winchester, Hampshire, England, 27/10/2008 20:43
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Brown's proposals illuminate clearly how wedded he is to the notion of a State command economy. The idea that the economy might best be stimulated by lowering taxes both for businesses and individuals, creating demand and renewed services in a market economy is anathema to Brown. He goes for State spending because he has the usual left wing delusion that he knows how to spend our money better than we do.
- James Elliott, Eastbourne UK, 27/10/2008 19:58
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Lemme see now - he's already soaked the rich. He's pretty much wrung the middle class dry. I wonder who that leaves to be taxed into penury......?
Yep, plenty of people to tax to death yet. (Well, he's gotta get the dosh from someone, hasn't he!)
- Rogan, Irving, 27/10/2008 19:30
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So Crash Gordon is going to continue to get excessive state debt for the UK. How is that going to solve the mess he created with his top heavy bureaucracy?!
- Jacqueline, Hampstead, London, 27/10/2008 18:17
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Who is he borrowing all that money from, I mean who has that kind of money to loan?
- Hugh E Torrance, London England, 27/10/2008 17:50
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It's sad how so many people are distracted by headlines. Brown is not planning to invest £100 Billion a year to save the economy. The supply side monster he created exists to deliver big government, big education, big healthcare, big social support etc is gosh damn expensive. As the real wealth generating economy contracts he has a choice starve his creation or borrow to feed it. Brown is never wrong, so he will borrow to feed and even expand it. As with all borrowing the debt will need to be repaid. When that day comes Brown will be out of office and the grim reality of depression will dawn on the daft deluded voters that believed that "Things could only get better"
Wake up! Brown is claiming he can borrow his way out of debt. Thats how we all got here. Dooh!
- Bill, Beaconsfield, 27/10/2008 17:33
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"Shadow foreign secretary William Hague warned that Britain was entering its most severe downturn for years with a higher proportional national debt than Uganda or Nicaragua"
Apart from the strange comparison of the UK economy with that of Uganda the quote highlights the absence of the Shadow Chancellor for comment at a time of national financial crisis.
Surely economists and politicians can play the blame game when we get through this crisis but meanwhile when are the opposition going to come forth with economic policies to minimise the effects of this recesssion?.
The investment in infastructure in London seems to be borne out by todays report from unhabitat.org that London is exceptional amoung cities in the UK in its continued population growth.
Calls by Mayor Boris Johnson for investment in London today to increase capacity in the infastructure to support the growing Capital are well fouinded.
Today the spokesman for TFL announced the first call for bids beginning with the £500m contracts to build Crossrail, starting with Tottenham Court Road station.
- Damien Vaugh, Greenwich, London., 27/10/2008 16:30
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Isn't it strange that people who are not even paying taxes in this country (Val Daniels, Mijas, Spain) have the nerve to suggest that only right wing, Tory supporters are fed up with this government? If they were here to see their taxes being squandered by Brown and Co.they too would be using strong language. If being a taxpayer (65 and still working) makes me right wing and objectionable, that is fine with me, because I have a right to object to being taken for a ride.
- Beatriz, London, 27/10/2008 16:09
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Val Daniels, sitting in Mijas is obviously out of the mainstream, as she wants to raise the class war spectre. Really Val if you think that all people criticising this government are right wing Tories, you really have been out of the country too long!!! People are angry that their pension funds have decreased by 50% compared with 2007, their house prices will have dropped by 20% by the end of 2008, their food and fuel bills have increased by more than 40%, and our national debt conservatively is running at £1.3 trillion and if you add in the government bailout of the Scottish & Northern banks will rise to a debt of £2 trillion, which is about double our GDP. This means this government has created a huge economic black hole that they want to throw another £100 BILLION into. Banks are now repossessing houses because this government tempted people with easy credit to fund their schemes. This is also the government that has widened the gap between rich and poor by 22% since being in office and is making us all poorer by the day. Now you wonder why people are abusive on this site, have I provided you with sufficient facts for you because all these points make me very, very angry. So keep sitting in Mijas, play a little golf with your other ex pats friends and let us solid Brits get on with getting rid of the worst government ever.
- Richard K, Nottingham, 27/10/2008 15:52
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The world is selling the pound because no one wants to go down with this bunch of fools. Leave them to their own devices.....just don't come begging for help next year when it all goes horribly wrong
- Kr, Cap Ferrat FRANCE, 27/10/2008 15:31
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Why does Gordon Brown persist in the fantasy that increasing public spending will solve anything? We know it will result in higher taxes to pay for the madness when what is needed is a reduction in tax to help households cope with increased finance charges.
- Neil Simmonds, London NW11, 27/10/2008 14:55
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Isn't it strange that it is only the right-wing Tory supporters who appear on here who resort to extreme and abusive language in order to express themselves. I wonder why that should be. Could it be that they think they may be on a losing wicket?
- Val Daniels, Mijas Costa. Spain, 27/10/2008 14:25
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What a co-incidence, just before the Glasgow East by-election Gordon gave away £2.7Bn in tax benefits, just before the Glenrothes by-election he anounces a £100Bn package to rescue the Economy.It took 60 years to repay Lease Lend, how long will all this take?
- Jeremiah, London, 27/10/2008 14:12
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It's the last throw of the dice. Brown created all this mess and so he will go for broke now with even more reckless borrowing and wasting. He has nothing to lose because the mess we are in is far worse than in 1979. He knows the Tories will take years to turn this around so the bigger the mess he gives them the better he will look.
- Tony C, London, 27/10/2008 13:42
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after the glenrothes byelection Brown is finished, so all of this noise he's making will be irrelevant..
- Timmy, London, 27/10/2008 13:39
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Brown will not be able to borrow on the scale he hopes. Foreigners will not- as the fall in sterling indicates- lend to us as under Labour's dire regime, since the Uk is regarded as a basket case rapidly descending into chaos. The trip to the IMF to beg a bail out is inevitable.
- Len Moss, burgess hill, 27/10/2008 13:39
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Surely he has lost the plot totally! Storing up huge tax increases for years to come to protect the millions of Public Sector NonJobs and gold plated index linked pensions, on which his dwindling votes depend. A vote of No-Confidence by the Tory Party must come soon before we are all bankrupted to feed his wild and financially suicidal strategy!
- Gary, wycombe, 27/10/2008 13:37
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Surely he has lost the plot totally! Storing up huge tax increases for years to come to protect the millions of Public Sector NonJobs and gold plated index linked pensions, on which his dwindling votes depend. A vote of No-Confidence by the Tory Party must come soon before we are all bankrupted to feed his wild and financially suicidal strategy!
- Gary, wycombe, 27/10/2008 13:37
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Wasn't it irresponsible borrowing and spending that got us in to trouble in the first place? Belt tightening would be more appropriate. To not waste any money on the Olympics which benefit nobody in this country would be a start.
- Jilly, London, England, 27/10/2008 13:04
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By vowing to spend his way out of recession Brown is hoping to disguise the amount he has borrowed already and distract us from his years of overspending.
Noting the fall in our Pounds value, don't Labour Governments always end up by devaluating the pound? (Remember "The pound in your pocket.....")
- M Wood, somerset uk, 27/10/2008 12:58
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Having read the comments below I was surprised to see how many were positive regarding Brown and Labour. Assuming these people are sane and allowed to vote, and not forgetting the idiots at the helm, as a nation we really are up shit creak. We are rapidly heading for failure on a monumental scale. The last time Labour were in power we had to go to the IMF. Looks like history will repeat itself.
- Dan, Manchester, 27/10/2008 12:56
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Andy, London
It must be very comfortable in your little padded-cell! Hope it doesn't hurt too much when you finally get out.
- Morvan, Saulieu, France, 27/10/2008 12:12
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Brother Brown and his communist sleazy matey "Lord" Madelson (puke) who, low and behold has been getting very cosy with the Russian Mafia, will break this country.
Labour = no policies that have worked, sleazy self serving rich socialists, politically-correct, minority-centric, high taxing, high spending, weak on immigration, weak on social welfare spending, weak on crime, and on, and on...
Return this country to democracy you unelected corrupt, communist, incompetents.
- Frank, Home Counties, England, 27/10/2008 12:06
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This level of incompetence beggars belief 
I LOVE the UK - but am so relieved I'm not there to see it's downfall.
- Marianne, S W France, 27/10/2008 11:58
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So glad I left the UK 50 years ago. What a disaster. They are broke broke broke. Not content with that they now plan to push ahead with their ID card scheme at vast cost too! Where's all the money coming from...? And those not born yet will be paying it back to the end of their days. What a disgrace. The labour party is finished for a long long time.
- Mr. Clever Bastard., Tenerife Canary Islands., 27/10/2008 11:52
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If your income if falling and your outgoings are increasing shouldn't you reduce your spending raher than take on more debt to simply piss up the wall?
- Ben, London, W1, 27/10/2008 11:52
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To Phil Jones - given that there's nothing left to privatise and no industry left to destroy, it will be difficult in any event to "pull a Mrs Thatcher". What the Tories could do, and this might make you happy, is to go American by destroying public services, rewarding the rich and bringing taxes down. Btw, as the UK is not in the Eurozone, the Bank of England "calls the shots" on fiscal policy, and there are no "provinces" in the UK, only counties.
- John Buckeridge, Harrow, 27/10/2008 11:48
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Why we have to bail the banks out? The goverment can give the money to the taxpayers instead and we can increase spending and grow the economy. Why we have to help the Banks that charging 20% on credit cards and let you down when you need them?
- Theo, Inverness, Scotland, 27/10/2008 11:48
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Gordon Brown and darling as been working night and day to sort the save economy and you lot just moan.this not labour falt that the we in a credit crunch it happening round the world now.
- Andy, London, 27/10/2008 11:21
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I would like to believe you are right, Albert Hall! Unfortunately there are so many people on benefits, so many civil servants and others who directly profit from this insane spend spend spend policy. And they all have votes!
- Delphine, Oxford, 27/10/2008 11:10
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The real national debt is suspected to be £1.3 trillion and the shortfall in taxes will shortly take this to £1.5 trillion with an interest rate of STAGGERING £125,000 per minute 24/7/365. This is a massive BLACK HOLE, and now he wants to spend £100billion more of our money on wasted projects. Bear in mind that he has also committed £500 billion more for the Scottish and Northern banks, so this means are debt as taxpayers has risen to over £2 trillion that leaves every taxpayer in this country owing £80,000 because of BROWN's incompetence. BROWN is stark staring bonkers and somebody needs to stop him and his poodle Darling NOW!!!!!!!!!!!!!!
- Richard K, Nottingham, 27/10/2008 10:31
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This man is now in a socialist's paradise. He's found an excuse to spend, spend, spend and spend some more. The next generation will paying, paying, paying heavy taxes, for years and years and years. And any succeeding Tory government won't be able to "pull a Mrs Thatcher" to get the U.K. back on its feet -- since the E.U. now calls the shots on fiscal policy for the provinces and it's of the same bent as Brown.
- Phil Jones, London UK, 27/10/2008 10:09
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Ever watchful of his own position and to hell with the country, Brown is on his scorched earth policy but he wont be fooling anyone come the election. He is dead in the water.
- Albert Hall, kettering, 27/10/2008 09:58
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Fools gold. Communist cannot, do not understand free enterprise nor free markets. Money doesn't grow on trees but the Loon-Lying-Nu-Labour don't know that. Remember, British Leyland, British Telecoms, British Gas and all the other failures you threw money at. Remember the miners? You create more harm then good. Give it up boys call an election and blame Margret Thatcher.
- Mike, London, 27/10/2008 09:41
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