Brown prepares to raid war chest

Economy: The Chancellor opens the way for an increase in borrowing as the City braces itself for mass redundancies

GORDON BROWN yesterday left open the option of raising borrowing to fund the gap between government spending and tax receipts as a result of the downturn in Britain's prospects for growth.

The Chancellor said that he would be abiding by his "golden rule" to borrow only to invest and not to fund currentspending over the present cycle. But he did not rule out raising borrowing in the short term.

"The golden rule also leads us on to say that investment can be financed by borrowing when it is in the interests of the country," he said.

Mr Brown gave a strong hint that his first move would be to raid the pounds 30bn surplus for the next three years, which was seen as Labour's election war chest when it was allocated last July in the comprehensive spending review.

Expressing hopes that extra borrowing would not be necessary, he said: "We have a margin of pounds 7bn, pounds 10bn, and pounds 13bn surpluses over the next three years and we will continue to be prudent and cautious in the management of the economy."

But Mr Brown confirmed that he did not intend to cut the spending plans for education, health and other programmes which were allocated in July, and he dismissed talk of soaring unemployment, which he called "alarmist".

"It's a moderation of growth, not the absence of growth," said Mr Brown, who is expected to tell the Commons early next month in his pre-Budget statement that forecast growth in Britain has been reduced to 1 per cent from 1.75-2.5 per cent.

Francis Maude, the shadow Chancellor, said on BBC1's On the Record programme yesterday that even growth of 1 per cent may not stop a recession in the next 12 months. "We all hope that isn't going to happen, because it's a heavy price that gets paid by people who lose their jobs, businesses fail, and their houses are put on the line.

"What is already admitted suggests we are sliding down towards recession. Even that revised forecast is still at the top end of the outside forecasts," he said. "Most economists are now predicting growth of considerably less than that."

The Chancellor today will urge European finance ministers at a meeting of Econfin to co-ordinate measures to avoid recession. "Europe should be cutting unemployment, engaging in structural reform, and making its contribution to trade. There must be no burden shifting, but burden sharing," he said.

Mr Brown also urged the United States Congress to agree to pay the US contributions to the International Monetary Fund that it should have done some time ago, so the fund would have the resources to develop long-term to neutralise economic crises such as those in the Far East.