Alistair Darling today defended his £1 trillion gamble to drag Britain out of recession, insisting that he was doing the "right thing" to support the economy.
The Chancellor said it would have been wrong to walk away and leave people to "sink or swim" as he faced questioning over yesterday's pre-budget report designed to kick-start the struggling economy with a £20 billion boost.
"It seems only the Conservatives who are saying, as they did in the 1980s and the 1990s, 'just walk away from people, leave them high and dry, let them sink or swim'," he told GMTV.
"I just do not think that is right thing to do. People expect the Government to help them. We will be helping people and I fully intend to see that through," he said on GMTV.
In a pre-budget report that surprised many with its scope, Mr Darling announced plans to cut VAT, boost tax allowances, and offer more cash to parents and pensioners.
But the "fiscal stimulus" will come with a sizeable price tag. Mr Darling admitted that state borrowing would hit £78 billion this year and £118 billion next year, while total national debt will top £1 trillion by 2012-13.
Shadow Chancellor George Osborne said that the best way to stimulate the economy was through "radical" cuts in interest rates.
"We have got to get lending going in this economy again, you have got to get credit to small businesses, that is where the action is needed, not, frankly, taking a huge risk with the public finances," he told the BBC Radio 4 Today programme.
He said that rate cuts should be accompanied by Government measures to ensure that they were passed on by banks to business.
"I think you could directly insure - for a premium to protect the taxpayers' interest - lending from banks to businesses to get credit flowing, to keep people in work, to stop businesses folding," he said.
"These measures would do far more than a 2.5 per cent cut in VAT - a temporary cut which would be paid for later with massive tax rises coming down the track."
Mr Darling said it was the right time to help people through measures such as increased pensions and child benefit, as well as the cut in the rate of VAT.
"Of course, we have got to live within our means, so I have also had to take difficult decisions, though I think it is the fair way to do it, to ensure we get that borrowing back down again," he said.
"People (who earn) over £100,000 will actually be paying more, I make no bones about that, in three years' time, when the changes come through.
"But I believe that it is the right thing to do, to support our economy now, but at the same time make sure that as a country, we live within our means."
In his statement yesterday Mr Darling made it clear that the better-off would be asked to shoulder the bulk of the cost of the rescue operation, with everyone earning more than £40,000 poorer thanks to a half-point rise in national insurance for employers and workers.
The Tories claimed those pulling in more than £19,000 would also be hit - although Treasury officials insisted rises in starting thresholds meant they would not lose out.
The wealthy will endure more pain in 2010, when deferred tax rises take effect. In a highly symbolic move for New Labour, a new top income tax rate of 45 per cent will be introduced for people earning more than £150,000 a year.
Personal allowances will also be slashed for everyone paid more than £100,000.
Altogether in 2010-11 the Exchequer is expecting to pull in some £4bn in extra taxes, as it seeks to reduce debt incurred by the downturn and fiscal stimulus.
The centrepiece of the Pre-Budget Report was a cut in VAT from 17.5 per cent to 15 per cent, which the Government hopes will encourage people to spend. But Mr Darling announced that the £12.5bn bill would be largely offset by rises in alcohol, tobacco and fuel duty.
In perhaps the most "Old Labour" economic package for decades, money from the wealthy will be redistributed to the worse off.
Every pensioner will get a one-off payment of £60, on top of the £10 Christmas bonus, from January - three months early.
An increase in child benefit has also been brought forward to January, while Mr Darling made the emergency £600 rise in personal allowances - introduced last April to defuse the 10p tax rate row - permanent.
But the Chancellor could do little to disguise the grim state of the British economy.
He predicted UK plc would shrink next year by between 0.75 per cent and 1.25 per cent - although it would then bounce back in 2010 with positive growth of 1.5 per cent to 2 per cent.
While £3bn in capital projects will be rushed through as part of the "pump priming", there will also be considerable tightening on expenditure.
Just months after he said public spending would go up by 1.8 per cent a year, Mr Darling revised that figure to 1.2 per cent - a reduction of around £12bn.
Mr Darling's insistence that the UK economy was in "a position of relative strength compared to the past" brought cries of derision from opposition MPs.
But he said it was right to abandon the Government's much-vaunted borrowing rules - describing the new arrangements as a "temporary operating rule".
"In the current circumstances, to apply the rules in a rigid manner would be perverse and damaging," he said.
"We would have to take money out of the economy, making a difficult situation worse."
After the 55-minute statement, Mr Osborne insisted the measures announced would double the national debt to £1 trillion and leave a "huge unexploded tax bomb" ticking under the public purse.
He told MPs: "The Chancellor has just announced the largest amount of borrowing ever undertaken by a British government in the entire history of this country.
"To pay for it he has placed a huge unexploded tax bombshell timed to go off underneath the future economic recovery."
Mr Darling rejected Tory claims that anyone earning more than £19,000 would ultimately lose out as a result of the PBR.
"People earning less than £40,000 won't be paying more. The burden really is falling on people on higher incomes," he told the BBC Radio 4 Today programme.
The Chancellor acknowledged there was an element of income redistribution in the changes, which would fall most heavily on people earning more than £100,000.
However, he denied that they marked the death of the New Labour project and its commitment not to penalise aspiration.
"Nothing in what I announced yesterday will shift me from my belief that, in order to get support in this country, we need to win the widest possible level of support," he said.
"I think people as a whole will say that it is right that the Government needs to help people, it needs to help businesses at this difficult time, but it also, like everyone else, needs to live within its means.
"What I set out yesterday was a way in which I think we can do that that I believe is fair.
"I have always been about opportunity and helping people and have always been about fairness and I have tried to do that yesterday."Reuse content