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Osborne embarrassed by calls to draw up a 'Plan B'

Senior officials have called for contingency plans to be drawn up in case the Government's economic strategy is blown off course by the crisis in the eurozone, it emerged yesterday.

The suggestion of possible measures to stimulate the economy is a potential embarrassment for the Chancellor, George Osborne. He has consistently denied the need for a "Plan B" saying there is no alternative to his policies.

Ministers insist that the exercise does not imply a lack of confidence in the Chancellor's approach. One Cabinet member said: "This reflects the uncertainty in the eurozone. It is such a big market for us that it could drag us down with it."

Sir Gus O'Donnell, the Cabinet Secretary and former permanent secretary at the Treasury, is said to have drafted a confidential paper outlining emergency measures to keep the economy moving. They include the Bank of England implementing a new round of quantitative easing, or "printing money", and buying commercial bonds to lend money directly to companies. Other options include speeding up building projects to boost the construction industry and tax cuts, although the latter is seen as unlikely because VAT is to rise to 20 per cent in January.

The Treasury believes there is no need for any new policies, pointing out that the "contagion" in Europe has not spread to the UK.

A Downing Street spokesman said: "It is quite normal for Government officials to be thinking about alternative scenarios."

But Alan Johnson, the shadow Chancellor, said the Government should re-think its economic strategy. "Even David Cameron's top civil servant thinks he needs a Plan B on the economy. The truth is he shouldn't be gambling with growth and people's jobs in the first place," he said. "No other country is following the risky path the Tories and Lib Dems have set the country on. They should think again about their plan for a £13bn VAT rise in just three weeks time."