Economy: PM faces call for 'tax and spend'

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THE PRIME Minister faced demands from his own party to return to the tax and spending policies of the 1970s yesterday as MPs welcomed the decisive shift to the left in Europe.

Calling for more state intervention, Derek Foster (Bishop Auckland) told Mr Blair during question time that currently in manufacturing in the North five jobs were lost for every one being created.

Mr Foster welcomed the Prime Minister's support for multi-billion-pound infrastructure plans designed to counter the effects of the global economic crisis at an informal EU summit at the weekend.

But he added: "Can I urge you to go further and please your friends in the North by working with the French and the Germans to forge a new consensus around neo-Keynesian economic and financial prophecy."

Admitting that there were difficult times ahead, Mr Blair made clear an end of boom and bust, new investment in skills and education to raise productivity and the New Deal were essential priorities of the Government's economic policy.

During a later exchange, William Hague called on Mr Blair to instruct Chancellor Gordon Brown to make a big enough change in policy to let the Bank of England cut interest rates by one per cent.

"I can tell you that there is a serious problem out there and the economy is heading in the wrong direction.

"The Government now has limited time to do something about it.

"Will you put in place conditions for lower interest rates in this country? Unless you do so, you will have been fiddling with the voting system while jobs burn," he said.

Mr Blair said interest rates "are coming down", adding: "I agree there is going to be a slow down and I agree too that we are inevitably effected by what is happening around the world because all international institutions have downgraded their growth forecast."