Higher borrowing is 'responsible', insists PM

(AFP/Getty Images)

Gordon Brown insisted today that higher borrowing to shore up the economy was the "responsible" thing to do.

After criticism from economists of the Government's plan to spend its way out of the downturn, the Prime Minister said debt could not be brought down until tax revenues recover.

Speaking at Imperial College in London, he said the only way for Britain to benefit from the "new global age" was to invest in the necessary long-term decisions.

Now was the wrong time to slash investment in areas like education, training, energy efficiency or tax cuts for hard-pressed families, the premier said.

"That means that the responsible course of government is to invest at this time to speed up the economic activity," he said.

"As economic activity rises, as tax revenues recover then you would want borrowing to be a lower share of your national income.

"But the responsible course at the moment is to use the investments that are necessary, and to continue them, and to help people through very difficult times.

"I think that's a very fundamental part of what we are doing."

His comments came after a group of senior economists yesterday urged tax cuts.

They slated the Government's plans to pour tens of billions of pounds into the economy in an attempt to head off the worst of the turmoil as "misguided and discredited".

Mr Brown's comments on investment came during a question and answer session with business leaders following an unscripted "off the cuff" speech.

His spokesman said today: "What the Prime Minister said was that it's the right and responsible thing for there to be a temporary increase in borrowing in the face of an economic downturn, but that we would then expect borrowing to fall as a share of national income in the future as the economy has started picking up again."

Pressed as to how far the Government intended to go in terms of borrowing to invest, the Prime Minister's spokesman said that was a matter for Chancellor Alistair Darling to address in the forthcoming Pre-Budget Report.

Mr Brown said he wanted to see the environment creating jobs for Britain in the same way as IT had in the 1990s.

He repeated his example that Government moves to improve energy efficiency in homes would require thousands of insulators to be trained up.

But he also warned that the economy would have to move forward and become more skilled as globalisation gathered pace: "I can't promise people that we will keep them in their last job if it becomes economically redundant.

"But we can promise people that we will help them into their next job."

Mr Brown insisted something would have to be done about the behaviour of oil "cartels".

Last week, Opec decided to reduce production by 1.5 million barrels-a-day after oil prices fell back from record highs.

Mr Brown also called for sovereign wealth funds to reinvest the massive revenues they had gained from high oil prices in renewable energy as part of moves to "rebalance" the international system, and said he would be raising issues on a forthcoming trip to the Gulf.

The Prime Minister also fuelled speculation that interest rates could be set to fall again soon.

He insisted that it was up to the Bank of England to decide on rates changes, but added: "I think you saw from what the governor (Mervyn King) said a few days ago that he feels the real threat we face now is the impact of the credit crunch on the economy and growth."

Meanwhile, Mr Darling will this week announce plans to scrap the fiscal "golden rule" introduced by Mr Brown when Labour came to power, it was reported today.

Mr Darling will confirm that he intends to get rid of fiscal rules that are seen as too rigid, such as Mr Brown's "golden rule" only to borrow to invest over the economic cycle, according to the Financial Times.

He will reportedly use Wednesday's Mais lecture in the City to unveil allowances for higher levels of borrowing as the UK goes into recession.

It is understood that details of the reforms will be laid out in the forthcoming pre-Budget report, in which the Treasury is expected to give itself more flexibility in short-term borrowing.

The Chancellor is expected to say that fiscal policy needs to be more flexible when the economy is going through global economic turmoil.