PM refuses to rule out another stimulus

Prime Minister closes world tour with a defiant swipe at Bank of England
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Indy Politics

Gordon Brown has kept the door open to another fiscal stimulus being announced in next month's Budget despite the Bank of England's warning that Britain could not afford another big spending boost.

But the Prime Minister, on a visit to Chile, was embarrassed last night when a political ally inadvertently echoed the Tory attack on his running of the economy. Michelle Bachelet, the Chilean President, said her government had been able to introduce a significant fiscal stimulus because it had "saved in the good times".

Although Ms Bachelet praised Mr Brown's leadership, her comments recalled David Cameron's charge that Labour did not "fix the roof while the sun was shining". She said in a joint press conference with Mr Brown in Santiago: "I would say that because of our decision during the good times, we decided to save same of the money for the bad times."

George Osborne, the shadow Chancellor, said: "Gordon Brown is getting lessons from the Latin Americans about sound public finances. You couldn't make it up. It is because under Labour, Britain suffers the national embarrassment of having the biggest budget deficit by far of any G20 country." Yesterday, the Prime Minister promised a "cautious" approach but insisted that would not prevent targeted measures to help the economy out of recession. He denied that Mervyn King, the Bank's Governor, had ruled out any fiscal action.

"He didn't say that at all. He said a targeted set of actions may be necessary," Mr Brown insisted during a round of broadcast interviews. "That could include actions on mortgages or climate change or low-carbon recovery or public works and investment."

He added: "We must not rule out the action that's necessary for jobs and growth... We have taken very substantial action over the past few months. Obviously, we want to look at how that has been effective. It is for the Chancellor to look at how, in the Budget, he moves the process forward."

Allies of the Chancellor Alistair Darling, who announced a £20bn stimulus in his pre-Budget report in November, said he had not ruled out a smaller package in the Budget on 22 April. Other ideas include an expansion of measures to aid firms and to help the unemployed get back to work quickly.

Mr Brown was speaking in Chile on the final leg of his five-day, three-continent tour ahead of next week's G20 summit in London. He hopes the leaders of the world's 20 leading economies will promise to do "whatever it takes" to combat the global recession – which could include higher spending and tax cuts where appropriate.

The Prime Minister, who will address a conference of centre-left parties in Chile today, said last night: "I'm determined next week's meeting takes action to prioritise the needs of the poorest, ensures the global recovery is a green one and focuses on protecting and creating jobs. I want the G20 to commit to supporting employment by stimulating demand and through active labour market policies."

Mr Brown, who has appealed to people not to be "cynical" about the summit, said: "None of this will be easy but I'm confident this summit will deliver results that do put people first – in this country and around the world."

He wants the G20 to double to $500bn the International Monetary Fund's budget to bail out countries that run into trouble. He will call for a strong commitment to invest in green technology and reach a new global deal on climate change at talks in Copenhagen in December. The Prime Minister will urge the summit to agree new rules to improve the regulation of banks, tax havens and hedge funds and to give a boost to world trade.

But David Cameron, the Tory leader, said yesterday that Mr Brown had been "humiliated" by Mr King's comments.

"I think obviously it is humiliating that while he is wandering around the world telling other people how to run their economies, he has actually been told here in Britain by the Governor of the Bank of England that he does not know how to run our economy," Mr Cameron said.