Clarke warns of 'deepest recession'

Britain is probably facing the "longest and deepest recession" for more than 60 years, Tory former chancellor Kenneth Clarke warned today.

In an emergency Commons debate on the Pre-Budget Report, Mr Clarke hit out at the "appalling scale of the fiscal gap" exposed in the Government's finances.

He said they showed that £20 billion was not available for the Chancellor's "fiscal stimulus".

Mr Clarke said: "We're probably facing the longest and deepest recession in this country of my lifetime.

"There is no doubt that the global financial crisis and the banking crisis is the worst crisis of its kind we've seen for at least 80 years.

"It has been made worse in this country, and we are more exposed than most developed countries, largely because of the mismanagement of the public finances, the failure to retain sufficient firepower in the public finances ... and the complete failure of the regulatory system."

Mr Clarke said the previous Tory Government successfully got the country out of recessions through sound fiscal policy - imposing tax increases and cuts in public spending, rather than fiscal stimulus.

But he clashed with senior Tory Sir Peter Tapsell (Louth and Horncastle), who condemned the 1981 Budget and said the west midlands had "never recovered" from this industrial destruction.

Mr Clarke said the industrial base had been destroyed by the "excessive" strength of sterling and insisted there were good reasons for rejecting fiscal stimulus.

Mr Clarke said: "This crisis is different. This is, at heart, a banking and a credit crisis.

"That is the main point that we must keep our eye on.

"Unless and until we get back to the normal functioning of the banking system, we won't have restored the British economy to health.

"The big gap in Government policy ... is they still have not produced a credible package to get the banking system functioning properly again.

"We are a million miles from that at the moment."

Mr Clarke said he excluded the Bank of England from most of the blame for the "catastrophic folly" that led to the crisis.

The key judgment was whether the state of the public finances justified "risk" or made it totally unacceptable.

People only had to look at the "appalling" state of the Government's figures to realise "that another £20 billion is not available for fiscal stimulus".

He added: "What we are talking about isn't how to pay for this VAT reduction but how to pay for years and years of running mounting deficits while the present Prime Minister was Chancellor and now the rapidly deteriorating position that the recession is beginning to cause."