While Tony Blair insisted that extra spending on health and education was safe despite the economic downturn, the Conservative leader accused him of "extraordinary complacency" over recent job losses. Mr Hague blamed government policies for forcing the manufacturing industry into recession and said that after a "summer of complacency", Britain faced an "autumn of rising unemployment".
But Mr Blair angrily branded Mr Hague's charges as "idiotic hysteria", adding: "The worst thing we could do is to take the Tory way and cut public spending next year."
Amid possible job losses at Rover's giant Longbridge plant in Birmingham, Mr Blair assured MPs that ministers would work with management and unions in their attempt to solve the difficulties. He said: "However, that problem is a problem mainly of productivity which we have to tackle if we're to make our industry competitive."
In a series of heated exchanges, Mr Hague called for Gordon Brown, the Chancellor, to come to the Commons and make a statement on his decision to slash his forecast of economic growth earlier this month.
To Labour cheers, Mr Blair launched a counter-attack and stressed that since last May employment had increased by 373,000. "That's one new job every two minutes," he said.
But Mr Hague dismissed the Prime Minister's figures as a "statement of extraordinary complacency from an MP who saw 600 jobs cut in his own constituency a few weeks ago".
Pressing Mr Blair on comments made by Eddie George, the Governor of the Bank of England, that unemployment in the North was an acceptable price to pay for curbing inflation in the South, the Tory leader added: "Is that your policy and if so what are you going to do about it?" He continued: "You inherited a golden legacy and in 18 months you have squandered it. The last Labour government had a winter of discontent and this Labour government has had a summer of complacency and is now facing an autumn of rising unemployment."
Mr Blair said Mr George's comments were not the Government's policy, adding: "If you look at his remarks in context, he was not actually saying that. What he was simply saying was that you have to set interest rate policies for the whole of the economy not merely any one particular region."
Earlier, during a short Commons debate, Labour MP Denis MacShane (Rotherham) said: "If Mr George sticks by his statement he should apologise, and if he continues to affirm the view that the people of the north of England are ready to be sacrificed to guard his interests, then I believe he should join them and resign."Reuse content