Brown to splash billions on schools and hospitals

Gordon Brown is planning to inject billions of pounds of emergency funds into new schools and hospitals to stimulate the economy as Britain heads into recession, it emerged last night.

As the Prime Minister warned yesterday of a "defining moment" for the country, it was revealed that public spending earmarked for after the 2010 general election will be brought forward to encourage growth. Alistair Darling, the Chancellor, is drawing up plans to raid 2010-2011 Budgets and "fast-track" the money to public service building projects. But the move is another major gamble by the Government, after the £500bn bailout of the banks, because it depends on a major recovery by the time a public spending black hole emerges in 2010.

Mr Darling will use next month's pre-Budget report to set out plans to raid future budgets, Treasury sources confirmed. The Chancellor will argue that public spending needs to be accelerated to stave off the worst effects of the recession. He is constrained by the dire state of the public finances, with borrowing expected to rise above £70bn next year. Cabinet ministers have been warned they have to work within existing spending, but money will be "reprioritised" in key areas such as schools, hospitals, and social housing. Mr Brown, who has declared he is the "rock of stability" in an uncertain world, last week pledged that the Government would do what it could to "keep the economy moving forward".

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In a further sign of the impact of the crisis on the real economy, universities yesterday warned they are on the verge of a financial crisis because of soaring rates of inflation, and may be forced to cut costs or call for voluntary redundancies among staff. The sector is committed to awarding staff pay rises of 5 per cent, based on September's retail price index, but many have failed to budget for the unexpected escalation in inflation, sources said.

The pay deal was secured by the Universities and Colleges Employers Association two years ago and many institutions had expected the rate of inflation to be far lower. When universities set their budgets for the financial year in March, inflation was below 4 per cent. A higher education source said universities may have to freeze recruitment of staff or impose job cuts. Jocelyn Prudence, chief executive of UCEA, said: "There is no doubt this pay increase will place substantial pressure on a number of institutions and they will manage it in a variety of ways."

Elsewhere, in contrast to last weekend's frantic round of meetings in Europe and the US, this weekend has so far proved more placid. President George Bush was last night due to meet French President Nicolas Sarkozy and European Commission President Jose Manuel Barroso at Camp David for talks on the economy, but no significant outcome is either sought or expected. All eyes will, however, be on the markets tomorrow, to see if last week's stuttering recovery continues. It is badly needed. Since 9 October 2007, US investors have lost $8.3 trillion from pension funds, college savings plans, 401(k) self-funded retirement plans and other investments.

The danger of "unbridled free markets" was a theme taken up by Gordon Brown, writing in yesterday's Daily Telegraph: "The first financial crisis of the global age has now laid bare the weaknesses of unbridled free markets," he wrote. "And what is happening around the world is raising quite fundamental questions for the new global age about the right relationships between markets and governments."

Mr Brown's comments are likely to be challenged by the Conservatives, who say the Government might use the crisis to increase state control over private enterprise. On Friday, the Tory leader, David Cameron, ended a truce with the Government over the crisis, saying it showed that Mr Brown's economic record was a failure.

In America, the wheels of justice have begun grinding slowly in the direction of bankers. US prosecutors have stepped up the investigation into the collapse of Lehman Brothers, with at least a dozen subpoenas being issued, including one to the investment bank's chief executive, Richard Fuld, The New York Times reported yesterday. Citing people close to the probe, it said that federal prosecutors in Brooklyn, Manhattan and New Jersey were examining events leading to Lehman's collapse and bankruptcy filing. One person said New Jersey prosecutors were looking into whether Lehman executives, including Mr Fuld, misled investors involved in the $6bn infusion of capital, announced by Lehman in June, about the bank's condition. That infusion came as Lehman disclosed a $2.8bn third-quarter loss, which caused its shares to plunge. Legal experts expect prosecutors will try to build fraud cases against Lehman executives by finding internal documents that contradicted public statements on the bank's status.

Meanwhile, Opec brought forward an emergency meeting from 18 November to Friday to discuss the impact of global recession on oil markets. Analyst Peter Beutel said: "It seems likely they will agree to cut production by a million barrels per day." Oil prices have fallen more than 50 per cent from their peak above $147 a barrel, hit just three months ago.