Brown defends bailout move to stave off deep recession

London: British Prime Minister Gordon Brown defended his plan on Sunday to inject billions of pounds of borrowed money into the economy to try to stave off a deep recession, saying failure to act could cause permanent damage.

Brown's finance minister Alistair Darling will today unveil a package of tax cuts and extra public spending expected to total up to £20 billion (Dh109.09 billion) in an attempt to keep Britons spending and stop the economy seizing up.

Sales tax

The centrepiece will be a temporary cut in sales tax paid on many goods, several newspapers reported yesterday.

They said the tax, known as value added tax or VAT, could go down to 15 per cent from 17.5 per cent for one or two years, giving a pre-Christmas boost to consumers' spending power.

Britain, buffeted by the global financial crisis, is on the verge of recession, with house prices slumping, unemployment rising and manufacturing output shrinking.

The cash injection will be paid for with borrowing, which could send Britain's budget deficit ballooning to around £120 billion in the next financial year.

Opposition Conservatives say the government's plan is unaffordable, risky and unlikely to work.

"Doing nothing is not an option," Brown said in excerpts of a speech he will give at a business conference today. "We need timely action now to prevent permanent damage."

The package is a gamble for Brown, whose handling of the financial crisis has lifted his flagging popularity ratings.

His hopes of winning the next general election, due by mid-2010, may depend on the recession being relatively short and shallow.

An opinion poll published in the Sunday Mirror showed the Conservatives with an 11-point lead over Brown's Labour Party, contradicting a run of recent surveys which had seen Labour fighting back to within about three points of the Conservatives.

The upturn in Brown's fortunes led to reports last week - dismissed by Brown - that he might call an election in June.