Prime Minister Gordon Brown defends decision to allow borrowing to rise

Prime Minister Gordon Brown today insisted he was "right" to run up Britain's largest-ever state deficit, saying that it was essential in order to get the country through the recession.

Mr Brown said that the decision to allow annual borrowing to rise to £178 billion had helped keep down unemployment, business failures and home repossessions.

And he warned that Conservative plans to start cutting the deficit this year and then reduce it more quickly than Labour represented a threat to the economy's recovery from recession.

Making his final appearance before the House of Commons Liaison Committee before the general election, Mr Brown warned: "If you were to cut that deficit too quickly and if you were to cut it now, this year, just as we are trying to get out of recession, then the economy would suffer, more jobs would be lost, more businesses would go under, more homes would be repossessed.

"It is not just a point of political controversy, the time you start to reduce the deficit. It is a matter of jobs, it is a matter of homes, it is a matter of businesses.

"Those people who want to cut the deficit immediately and cut it very fast are making a mistake with the economy, which needs the level of support we are giving it."

Mr Brown said that the Government had set out a clear plan for cutting the deficit by half within four years once the recovery was firmly established.

He insisted that Chancellor Alistair Darling's forecast of a return to 3.5% GDP growth in 2011 was not "over-optimistic", pointing to President Barack Obama's projection of 4% growth over the same period.

And he denied that he had been irresponsible to ramp up Government borrowing during the recession.

"I think it is right to have run a large deficit," he said. "I think it has been essential for us to have the recovery that is necessary for the economy.

"We have managed as a result of that, in the face of the biggest financial crisis the world has seen for 70 years, to maintain far lower levels of unemployment than we would otherwise have been able to achieve, saved businesses that might otherwise have failed and kept people from having their homes repossessed.

"Our level of deficit will be published in the Budget. Yes, it is a high level of deficit, but we have got the advantage of having started from a low level of debt, which meant we were flexible enough to be able to afford a deficit."

Asked about reports that defence spending is to rise, despite the need for cuts across Whitehall to reduce the budget deficit, Mr Brown said that was yet to be decided.

"Defence expenditure is rising this year and next year," he said. "Defence expenditure for future years is the subject of our spending review."

A paper will be published tomorrow on the strategic defence review, which he said would "lead into our spending review, then we will make decisions for future years".

"I think what was being emphasised at the weekend was the additional spending above the defence budget... the money that is spent on Iraq and Afghanistan."

Mr Brown said much of the savings to be made elsewhere would come from reductions in the capital budget.

Other sources of savings would include public sector pay and pensions and changes in the IT and regeneration programmes.

"We are not afraid to make the cuts that are necessary so that we can secure Britain's better future," he said.

"Our deficit reduction plan is to halve the deficit over the next four years by the means that I've set out, including by tax, by growth and by the public spending changes that I've been identifying here.

"There can be no doubt about our determination to cut the deficit in half."

Asked where the brunt of the cuts would fall, the Prime Minister said: "Every department is having to ensure that they run things more efficiently, but what we have been able to say is that those frontline services - policing, healthcare and schools - will be protected.

"The spending review will come at the appropriate moment. There is so much uncertainty about the levels of resources that are available, partly because unemployment has not gone up in the way that we expected.

"There may be more resources available for public services than we had expected. If we made a decision in the last Pre-Budget Report or Budget, we would have to change it now.

"As you know, and I think everybody should be happy about, unemployment is not rising in the way that people expected. In fact, unemployment has fallen in the past two months."