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Gordon Brown reaffirmed his commitment to tax cuts today as the rift between Labour and the Tories over the best way to keep Britain out of recession widened.
Speaking at 10 Downing Street following talks with the European commission president José Manuel Barroso, the prime minister welcomed this weekend's call from the head of the International Monetary Fund for governments around the globe to introduce fiscal stimulus packages to boost the economy.
Brown said Britain was ready to play its part in the process.
"Britain, like many other countries in Europe, is ready to make its contribution for a temporary and affordable fiscal stimulus," he said.
"It is now clear that the need for an urgent fiscal stimulus, within a medium-term framework of fiscal sustainability, is overwhelmingly accepted across the world."
The prime minister's comments were a riposte to the shadow chancellor, George Osborne, who yesterday accused the government of abandoning fiscal responsibility and storing up tax rises for future generations.
Speaking on the BBC yesterday, Alistair Darling, the chancellor, said the economy needed quick and decisive action. He said: "At a time when the economy slows down your tax receipts start to fall. If you then were to start cutting spending or trying to get more tax out of people that would make a difficult situation worse, so what you do is you support the economy by helping businesses, by helping people."
Downing Street has suggested the tax cuts will be aimed at the lower-paid, since they are more likely to spend the extra income, rather than save it.
Yesterday Osborne renewed his claim that Britain's ballooning public sector debt is triggering an unprecedented collapse in the value of sterling. Osborne insisted that his job was to tell the truth about the economy, and claimed that the choice was between "funded tax cuts from the Conservative party and a tax con by the Labour party".
This morning the business secretary, Lord Mandelson, accused Osborne of being "reckless and irresponsible". Mandelson told BBC Radio 4's Today programme: "What George Osborne was trying to do in his remarks was undermine the confidence of markets."
Osborne's comment did not seem to affect the value of sterling. This morning the pound rose in early trading.
In his comments yesterday Osborne insisted: "The markets are looking at the economic fundamentals; they're not looking at what politicians, be it myself or indeed any other politician, are saying."
He added: "What we're seeing is the largest fall in the pound in modern British history. The Brown devaluation of 30% in recent months is bigger than the Wilson devaluation, or the Callaghan devaluation.
"One of the reasons is Gordon Brown's decision to abandon fiscal responsibility and prudence as his boom turns to bust. Now, behind-the-scenes spinning from the prime minister and his entourage in America are fuelling speculation that the government is planning to borrow recklessly for a big unfunded tax con."
As the government moved to question the Tories' judgment, it was pointed out that Osborne was not the only one talking about the falling pound. Last week, former Treasury permanent secretary Lord Burns had warned of a painful fall in sterling.
There is intense debate among economists as to whether sterling's fall matters, either because it will trigger inflation, or will lead the Bank of England to slow down further interest rate cuts.
The pound has lost around 25% of its value against a basket of major currencies in the past year, but the bulk of the drop has come in the last three months as financial markets have been spooked by the UK economy's rapid descent into recession.
On Friday, it fell to its lowest level in 13 years on a trade-weighted basis and now buys just $1.47, down from $2 in the summer. It is at a record low against the euro.
Apart from public finance figures, economic data out this week are likely to put further pressure on sterling, with retail sales figures on Thursday expected to show that consumers are reining in spending.
Tomorrow, inflation numbers will be watched carefully to see how far the cost of living is being pulled down by falling oil and food prices.
- Gordon Brown
- Tax and spending
- Economic policy
- Credit crunch
- Income tax
- Tax
- George Osborne
- Alistair Darling
- Economics
- Recession
- Market turmoil
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