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Gordon Brown arrived in Washington last night for a crisis meeting of the G20 after pledging that lower interest rates, tax breaks for the low paid and measures to make the economy greener would be at the centre of Britain's response to the global recession.
The prime minister hinted that the pre-budget report this month would make tax credits for the working poor more generous and provide cash for home insulation. Brown also said the cost of borrowing would come down, and delivered a veiled rebuke to the Bank of England for keeping interest rates too high for too long.
Today's talks between the leaders of 20 major developed and developing nations are expected to endorse measures to lift the global economy out of the downturn, although some European countries are lukewarm about big expansionary packages.
Speaking to the Council on Foreign Relations, a New York-based thinktank, the prime minister said: "We need to make monetary policy work to better effect. In the US, interest rates have been reduced to 1%. The European area has been slower - rates are 3.25% in the euro area and 3% in the UK.
"There is scope, as the governor of the Bank of England says, for a further reduction in interest rates. It is an essential part of what we are doing."
The prime minister insisted that lower interest rates needed to be accompanied by an expansionary fiscal policy - tax cuts and spending increases - and made it clear that the government wanted to avoid any financial giveaway being saved rather than spent, as happened to half the 1% of GDP rebate handed to US taxpayers earlier this year.
Less well-off families are seen as more likely than rich families to raise consumption after a tax break. "People on low incomes will have a higher propensity to spend if their credits are higher," he said.
The prime minister said he also wanted to make sure that any fiscal boost made Britain more environmentally "sensitive and efficient".
Measures to improve insulation and draft proofing would be part of a longer-term strategy aimed at boosting green industries and technologies. "This could be a big expanding sector. It could be for employment what IT was in the 1990s," Brown said.
He said that the G20 should be looking to the new growth industries of the future, rather than seeking to protect sectors in decline.
With debate raging in the US over a possible government bail-out for the car industry, the prime minister made it clear that he thought the incoming president, Barack Obama, should resist protectionism.
"Restructuring of industries and services will have to take place," Brown said. "It's an illusion that every job will be there when this crisis is over.
"Our message should be that we can't help you keep your last job, but we can help you get the next job."
The slump of the 1930s had been deepened, Brown said, by the lack of cooperation that prompted trade barriers to be erected. "We have to send out a signal that protectionism is the road to ruin."
Attempts will be made today to revive the Doha round of global trade liberalisation talks, which have been stalled since the latest breakdown in the summer. Brown said that the gap between the main protagonists in the negotiations was small, adding: "If we could announce a world trade deal in the next few months we would get the most precious of things: confidence."
George Bush warned on Thursday that the hastily convened meeting could not be expected to piece together a new global financial order following the credit crunch crisis of the past 16 months.
The White House is resistant to draconian curbs on hedge funds and wary of the beefed-up system of global banking regulation proposed by Brown.
Plans for reform of the International Monetary Fund, giving it extra supervisory and financial firepower, are also running into opposition from Washington.
Brown wants the IMF to have a better early warning system, the resources to help troubled countries through financial crises, and a surveillance regime that looks at the global economy as a whole rather than focusing on individual countries.
He said yesterday he envisaged the IMF as looking more like "an independent central bank".
- Interest rates
- Interest rates
- Bank of England
- Gordon Brown
- Economic policy
- Credit crunch
- Pre-budget report
- Economic growth (GDP)
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