Britain to unveil stimulus plan to avert deep recession

Channel News Asia
Britain to unveil stimulus plan to avert deep recession
Posted: 23 November 2008 1203 hrs

LONDON - Britain will launch a bold economic stimulus plan Monday to combat looming recession, as a politically-revived Prime Minister Gordon Brown calls for a "new approach" to tackle the world slowdown.

In a closely-watched presentation, Finance Minister Alistair Darling will unveil a pre-budget report expected to outline plans to slash taxes and boost spending ahead of the full 2009/2010 budget early next year.

Against the background of a sharp economic slowdown, mounting job losses, souring consumer sentiment and perilous public finances, Brown insists decisive measures are crucial.

"Doing nothing is not an option," Brown is to tell delegates on Monday at the annual conference of the Confederation of British Industry (CBI), the country's biggest employers' organisation.

"A new approach is now needed if we are to get through this unprecedented global financial recession with the least damage to Britain's long term economic prospects," he will say, according to an advance copy of his speech.

The British premier, whose poll ratings have surged amid praise for his handling of the financial crisis, argued at this month's G20 summit in Washington that governments must spend their way out of the global downturn.

Brown, Britain's "Iron Chancellor" for a decade until he succeeded Tony Blair last year, won widespread plaudits this month for a huge 37-billion-pound banking-sector rescue deal that was emulated in Europe and the United States.

On Monday, Darling could slash taxes by between 15-30 billion pounds (18-35 billion euros, 22-44 billion dollars), according to media reports.

"Desperate times call for desperate measures," said economist Howard Archer.

"Ordinarily with the public finances in the very poor state that they are, the government would be highly unlikely to be enacting fiscal stimulus."

"But these are very, very far from ordinary times... The very real risk of something extremely nasty happening to the economy warrants substantial fiscal stimulus being enacted at this stage," added Archer, of IHS Global Insight.

However, British media reported Saturday that Darling would likely warn that any tax cuts will be short-lived -- and they will have to rise at some stage in the future to pay for the stimulus plan.

"What Alistair will do on Monday is announce a fiscal stimulus package and lay out how he's going to pay for it," The Guardian newspaper quoted a Treasury aide as saying.

Brown's Labour administration wants countries around the world to splash cash on stimulus spending plans to help lift the world economy out of the doldrums amid the burgeoning global financial crisis.

"It has been well flagged that the chancellor will bring forward capital spending and provide help to small businesses," added Dresdner Kleinwort analyst David Owen.

"But Alistair Darling will save the bulk of his ammunition for targeted tax cuts... to have the best chance of improving economic conditions."

Darling is also highly likely to slash the government's forecasts for GDP growth after the British economy shrank in the third quarter of this year for the first time in 16 years -- leaving it on the brink of recession.

Ahead of Monday's budget, Brown has vowed to deliver "real help for families and businesses" suffering from runaway domestic electricity and gas bills, soaring food prices, tightening credit and a slumping property market.

"It makes sense for government to support interest rate cuts with fiscal action that is giving real help to families and businesses now, and I believe that we will see in the next few weeks many countries following with expansionary measures," said Brown.

Leaders of the G20, the world's 20 largest economies, pledged action in Washington to reverse a looming global recession and prevent future financial upheaval -- but they shied away from a coordinated stimulus action plan.

Brown, who advocated such a move in Washington, has enjoyed better success closer to home.

Last week, his Labour party's poll gap on the opposition Conservatives narrowed to just three points, after languishing 20 points or more behind the Tories for much of this year.

But Britain's economy suffered more bad news last week in the form of deteriorating public finance and retail sales data.

A wave of major companies have meanwhile axed thousands of British jobs in recent weeks, including AstraZeneca, BAE Systems, BT Group, Rolls-Royce and Virgin Media.

- AFP/ir