Brown denies spending plans are a 'huge gamble'

Prime Minister nails electoral prospects to £61bn boost while allies admit taxes and borrowing may have to rise

Tony Blair and Gordon Brown sought yesterday to allay fears that their ambitious plans to boost public spending could be blown off course by an economic slump.

The Prime Minister nailed Labour's electoral prospects to the £61.3bn spending hike over the next three years, admitting that his party would pay the price if public services did not get better. "I think if public services don't improve by the next election, people will hold us heavily to account," he said.

The Chancellor denied his spending programme was a "huge gamble" because of the uncertain global economic outlook. Close aides said his plans were based on sufficiently cautious projections to withstand short-term problems such as this week's stock market fall.

However, allies admitted that Mr Brown might be forced to raise taxes, increase borrowing and curb spending in the event of a full-scale slump. "It might be a combination of all three," one said. During his grilling by the chairmen of Commons' select committees, Mr Blair insisted the spending announced on Monday would withstand a slump and the stock market turmoil. "They are based on the most cautious assumptions. The record of the last five years shows that those assumptions have been well made," he said.

However, the Prime Minister admitted that his drive to improve public services was taking time. "It takes a long time to turn around a failing public service," he said. "It is really only in the last couple of years money has really started to come to the front line. I think you will find in the coming couple of years that people do recognise considerable improvements on the ground," he said. "Sure, there is a great deal to do but I think it would be a mistake to say nothing has happened."

Mr Blair conceded that managing public expectations was "a big problem". He said: "If you are not careful, when you announce extra money for the health service, people turn up at the doctors' surgery the next morning and say 'where is it?'"

He insisted that the publication of 10-year plans and targets would help to manage expectations. "It is not going to happen overnight," he said.

During a round of media interviews, Mr Brown said: "People are complaining it's too much, a huge gamble. I think we have got the balance right. It is a huge increase but, equally, we are demanding that standards are met. It is reform in return for resources."

The Chancellor said that the "volatile international financial situation" had to be put in perspective against the background of the UK economy.

"We have got to ask when these things happen, are the fundamentals right? Is there low inflation? Inflation is at its lowest for 30 years. Are public finances in order? Yes. Is the economy growing? Yes it's growing."

Mr Brown insisted the stock market turbulence had been sparked in the United States, particularly by the collapse of the energy conglomerate Enron. "I am not complacent. You have got to be vigilant. We will be vigilant all the time about what's going on in the economy," he said.

But the Tories said the London stock market had fallen by 10.1 per cent since Labour came to power in 1997, compared with a rise of 23.8 per cent in America and 19.9 per cent in European stock markets.

Michael Howard, the shadow Chancellor, said: "There are many reasons why stocks have dropped but it's also clear that Labour's policies are hurting business. Gordon Brown's £12bn in red tape and extra taxes, the rise in national insurance contributions and Labour's raid on Britain's pension funds are undermining the ability of British business to create the wealth to fund the public services we need." He said the Tories would produce more "radical" policies on public services that would devolve power to a local level, reversing Labour's "centralising" approach.

Matthew Taylor, treasury spokesman for the Liberal Democrats, said the spending review was not about reform but about more central control. Local people should decide how their schools and hospitals were performing, he said.