Brown claims world backing for plan to tax less, spend more

Gordon Brown will claim today that his plans to cut taxes to keep the British economy moving have won the endorsement of leaders from the world's 20 largest economies.

The Prime Minister will use the conclusions of the G20 summit in Washington to justify plans to raise tax credits for the low paid and speed up building projects on schools, hospitals, housing and transport projects.

In the pre-Budget report a week today, the Government may also announce a boost to winter fuel payments. Changes to tax credits could help the 1.1m "losers" from last year's scrapping of the 10p income tax rate who missed out on compensation this year.

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Government sources dismissed as "complete garbage" speculation that taxes could be cut by a massive £30bn. But the Washington meeting may have given the Chancellor, Alistair Darling, more room for manoeuvre.

Dominique Strauss-Kahn, the managing director of the IMF, who attended, called for nations to approve a fiscal stimulus equal to 2 per cent of gross domestic product – about £30bn in Britain. Such a move, he said, would result in a 2 per cent increase in growth. When asked where fiscal stimulus was needed, he said: "Everywhere. Everywhere where it is possible."

He said: "It's time for co-ordination. I welcome the emphasis on fiscal stimulus, which ... is now essential to restore global growth. Each country's fiscal stimulus can be twice as effective in raising domestic output growth if its major trading partners also have a stimulus package. Everywhere, where you have low inflation, this has to be considered."

In a Commons statement on the summit this afternoon, Mr Brown will say that the G20's call for lower interest rates, higher public spending and tax cuts offers a "route map" out of the economic crisis.

The success of the emergency gathering in Washington will depend on countries following up on promises to stimulate their economies and co-operate on plans to prevent future financial crises, leaders warned.

While the unprecedented summit, which brought together developed and developing nations, made numerous specific proposals to reform domestic finance industries, details still to be thrashed out could undermine the tentative consensus agreed at the weekend.

Leaders signed up to an 11-page action plan, which charged their own governments and regulators to come up with detailed measures to oversee their sprawling finance industries, to shine light into the opaque derivatives markets that have caused much of the financial chaos, and to curb bank pay policies that encourage excessive risk taking. They are also working on schemes to increase co-operation between regulators, so multinational banks and offshore hedge funds cannot destabilise the system.

They have agreed to reconvene in April – probably in London – when Britain will hold the rotating chairmanship of the G20 and Barack Obama has settled in as President of the US.

"What matters now are the follow-up actions," said Robert Zoellick, the president of the World Bank, one of the international organisations which will get a make-over and where developing nations will be given more say, if the G20 plan is fully enacted.

Analysts pointed out that the G20 agreed broad principles of co-operation, but that many of the specific promises were on ways of improving national regulation and stimulating individual economies. The communiqué stopped short of some of the more ambitious plans of European leaders for formal co-ordination of economic policy or the creation of supra-national regulators.

Simon Johnson, professor of entrepreneurship at MIT and a former chief economist at the IMF, warned that specific plans for individual countries to simultaneously lock down on risky banking practices, though it may be vital in the long run to prevent a repeat of the credit crisis, could be damaging in the short term, when economies need all the boost they can get.

"None of the principles are really new and it could all have been arranged by finance ministers, probably over the telephone," he said. "But as well as disappointed, I am also a bit worried about the contradiction between the principles and the specifics. What officials have to deliver on, by the end of March, is substantive progress with regards to tougher and tighter regulation of credit. There is a real danger that this action plan – within such a short time frame – can actually make the global downturn dramatically worse."

Crucial to the success of this meeting will be the attitude of President-elect Barack Obama, who wasn't even present in Washington. The German Chancellor, Angela Merkel, said that Mr Obama is likely to be supportive of the outline plans, having sent emissaries to the summit and having already promised a package of public works projects and other government spending to stimulate the US economy.

Mr Brown failed to win explicit pledges of money for the IMF from emerging nations such as China and the Gulf states, although Japan agreed to pay an extra $100bn to support loans to tottering developing countries. The Prime Minister predicted other countries would follow in the next few days.