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UK plans to increase borrowing to combat recession

UK plans to increase borrowing to combat recession

British Prime Minister Gordon Brown is laying out plans for an increase in government spending to cushion the country's fall into recession.
"We will and can allow borrowing to rise to help restore demand and to come to the aid of workers, businesses and homeowners," Brown is set to tell business leaders and academics in a speech Monday, according to extracts released by his office.
Last week, official statistics revealed that Britain's economy contracted for the first time in 16 years in the third quarter between July and September.
Brown and Bank of England Governor Mervyn King have predicted that next quarter's figures will also show economic contraction, warning that Britain is likely heading into a recession _ defined as two or more consecutive quarters of negative growth.
Brown plans to argue Monday that increasing government spending through borrowing will limit the effects of the economic downturn by putting more money in taxpayers pockets.
"The responsible course is to borrow now to maintain growth and output," he says in the speech text, adding that the move will "support hard-pressed families and businesses through the downturn."
But not everyone is convinced that increasing borrowing is the right course of action. In a letter to the Telegraph newspaper on Sunday, 16 leading economists argued that the plan could do more harm than good.
"It is misguided for the government to believe that it knows how much specific sectors of the economy need to shrink and which will shrink 'too rapidly' in a recession," the economists said in the letter. "Thus the government cannot know how to use an expansion in expenditure that would not risk seriously misallocating resources."
The letter was signed by economists including Trevor Williams, chief economist at Lloyds TSB Corporate Markets and Peter Spencer, a leading economist at Ernst & Young.
The planned borrowing increase contradicts Brown's own rule for national debt, which he set out when he became Treasury Chief in 1997. Then, Brown said Britain's debt level shouldn't go above 40 percent of gross domestic product, but in August net debt rose to 43.3 percent _ or 633 billion pounds ($973 billion).
Brown also has faced criticism from the opposition Conservative Party, which has said that Brown's Labour Party failed to limit spending and put away savings during the economy's boom growth over the last decade.


Updated : 2021-01-28 05:06 GMT+08:00