Sarkozy insults PM's economic policies

Gordon Brown is heading for a showdown with Nicolas Sarkozy after the French President scorned his handling of the economic crisis.

Mr Sarkozy provoked anger in Downing Street when he vowed not to repeat Mr Brown's "mistakes" and dismissed as a failure his decision to cut the rate VAT in an effort to stimulate spending.

Officials at the Elysée Palace sought to smooth over the diplomatic row after Britain protested about the comments, but the Prime Minister's spokesman made clear the Government's deep irritation over the incident. He said: "The Elysée have been in contact this morning to assure us that these remarks were not meant as a critique of UK economic policy – which is nice."

The spokesman also suggested that Mr Sarkozy, who made a high-profile state visit to Britain with his wife Carla last year, was playing to a domestic audience with his remarks.

The two men will meet later this month at a gathering of EU leaders to discuss their response to the deepening recession. Downing Street officials indicated Mr Brown would challenge the French President over his remarks.

The comments are a severe blow to the Prime Minister's argument that he is building international consensus for his blueprint for tackling the global downturn. He has also regularly charged David Cameron, the Tory leader, of being out of step with world opinion over combating the recession.

Mr Sarkozy's outburst came in a 90-minute interview carried on three French television channels. He said: "Gordon Brown's decision to cut VAT has absolutely not worked. Cutting VAT by two points doesn't incite people to buy if they are scared about their own future. If anything, consumption in Britain has gone down."

Challenged last night over his plans to boost the economy by infrastructure spending rather than tax cuts, he responded: "Britain is cutting taxes. That will bring them nothing. Consumption continues to decrease in Britain."

His broadside against the cut in VAT from 17.5 to 15 per cent touched a raw nerve for the Prime Minister, coming just days after Wouter Bos, the Dutch Finance Minister, derided the VAT cut as "not a very wise thing to do".

Germany has also rejectedcutting sales taxes and its Finance Minister, Peer Steinbrück, accused Mr Brown of "crass Keynesianism".

Downing Street insisted that it was too early to judge the effect of the reduced VAT rate, which will apply until the end of the year, pointing to a study that suggested it could boost spending levels by 1.2 per cent during 2009.