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Darling 'to force banks to lend' Darling 'cannot avoid tax rises'
(about 5 hours later)
The government says it has not ruled out forcing banks to lend to small firms hit by the credit crunch. Alistair Darling may be forced to set out details of future taxes rises to pay for a short-term boost to the economy, the BBC understands.
Chancellor Alistair Darling is also reported to be considering a cap on interest rates on small business loans. The chancellor is expected to announce a package of tax cuts and public spending funded by borrowing in his pre-Budget report on Monday.
In his pre-Budget report on Monday he is expected to unveil measures to kick-start the economy, including tax cuts and increased public spending. But he will have to put taxes up in 2011 or 2012 to pay for it, BBC Business Editor Robert Peston has said.
But he may also be forced to announce deferred tax rises and spending cuts due to soaring debt, reports say. The Tories have warned against tax cuts now leading to a "tax bombshell" later.
The Financial Times says Treasury officials believe the "mammoth shock" to the economy as annual borrowing heads towards £120bn will cause tax revenues to fall far below previous estimates. In his blog, Mr Peston said: "I am certain that on Monday the chancellor will also announce a significant package of measures to stimulate the economy.
These will include tax cuts and spending increases funded by extra borrowing, equivalent perhaps to as much as 2% of GDP.
If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later Gordon Brown Analysis: Crunch time for DarlingRobert Peston's blog
And the bulk of the tax cuts will be directed at those on lowest incomes, partly because they have the highest propensity to spend - for the good of the economy - and also for reasons of social justice."
But the chancellor will also have to announce deferred tax rises and cuts in public spending, added our correspondent "to kick in when the economy has recovered a bit," perhaps in 2010 or 2011 - the year after the latest date of the next general election.
Failing to announce debt-reduction measures could lead to a damaging rise in government borrowing costs and a run on the pound, of the kind shadow chancellor George Osborne has been warning about, experts have suggested.
The BBC understands Mr Darling will have to borrow large over the next two years - equivalent to at least 8% of GDP which adds up to more than £110bn per year.
Election speculationElection speculation
The Conservatives have spoken out against the government's plans for a temporary "fiscal stimulus", warning that it could lead to tax increases later. Mr Darling is also expected to unveil help for small businesses hit by the credit crunch and is reportedly "infuriated" by the banks' apparent refusal to free up credit despite receiving a £37bn bailout.
But ministers say it is necessary to stave off recession and is in line with action being taken by other major industrialised nations. According to stories in the Daily Mail and the Daily Telegraph, he is preparing to underwrite small business loans in his pre-Budget report and may also legislate to make the banks start lending again.
The government is also under pressure to come to the aid of small businesses.
If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later Gordon Brown Analysis: Crunch time for Darling
This is amid growing anger at the apparent reluctance of banks to pass on cuts in interest rates and free up credit - particularly after several took part in the government's £37bn bailout scheme.
MPs from all parties are thought to have been bombarded with letters from businesses saying banks are refusing to lend to them.
Mr Darling is reportedly "infuriated" by the attitude of the banks and, according to stories in the Daily Mail and the Daily Telegraph, is preparing to underwrite small business loans in his pre-Budget report. He may also legislate to make the banks free up credit.
Guarantee loans
Downing Street refused to rule out such a move, but the prime minister's official spokesman declined to comment on the contents of the pre-Budget report, beyond saying it would include "help for small businesses to get them through this difficult period".Downing Street refused to rule out such a move, but the prime minister's official spokesman declined to comment on the contents of the pre-Budget report, beyond saying it would include "help for small businesses to get them through this difficult period".
He said both Mr Darling and Mr Brown were determined to see banks and building societies fulfilling their commitments to lend to small businesses. He said the government wanted to work constructively with the banks and were "in dialogue" with them.He said both Mr Darling and Mr Brown were determined to see banks and building societies fulfilling their commitments to lend to small businesses. He said the government wanted to work constructively with the banks and were "in dialogue" with them.
London's Evening Standard reported that Mr Brown is planning to hold a general election in June to coincide with European and local elections and take advantage of a "recession bounce" in his fortunes, saying the PM was "giving the financial crisis his undivided attention".
BBC's Nick Robinson and Hugh Pym discuss likely measures in the PBRBBC's Nick Robinson and Hugh Pym discuss likely measures in the PBR
But asked about the story on BBC Radio 2's Jeremy Vine show, Mr Brown said: "My undivided attention is on the economy, I'm not thinking about anything else, it's 100% of my attention and you can just discount all these stories." He added he was "not thinking about anything related to internal politics". Speaking earlier Gordon Brown said: "If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later. You've got to act now so we avoid a worse problem."
He would not give details of any potential tax cuts saying that was a "matter for the chancellor".
But he added: "If you don't act now and fiscal action is what we are talking about - whether it's public investment or whether it's in taxation - we will pay for it later. You've got to act now so we avoid a worse problem."
Shadow Chancellor George Osborne has said a Conservative government would step in to guarantee loans made by banks and would even loan money directly to businesses as a "radical" last resort.Shadow Chancellor George Osborne has said a Conservative government would step in to guarantee loans made by banks and would even loan money directly to businesses as a "radical" last resort.
The Liberal Democrats have also said the government should lend directly to businesses, through the Post Office, local authorities or even by creating an entirely new government-owned bank.The Liberal Democrats have also said the government should lend directly to businesses, through the Post Office, local authorities or even by creating an entirely new government-owned bank.
Labour MP John McFall, chairman of the Treasury select committee, said the major banks should be threatened with full-scale nationalisation if they failed to comply.Labour MP John McFall, chairman of the Treasury select committee, said the major banks should be threatened with full-scale nationalisation if they failed to comply.
"Despite having been pulled back from the brink, the banks appear reluctant to launch their sizeable recapitalisation lifeboat and start lending again to households and businesses," Mr McFall said."Despite having been pulled back from the brink, the banks appear reluctant to launch their sizeable recapitalisation lifeboat and start lending again to households and businesses," Mr McFall said.
"It would seem that they are instead navel-gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty.""It would seem that they are instead navel-gazing and looking warily at each other instead of concentrating on their customers, many of whom are still in peril on a sea of uncertainty."
But Angela Knight, of the British Bankers' Association, told BBC Radio 4's Today programme that banks had to keep capital as a safety net, and the money some banks were given by the government was "to absorb losses".But Angela Knight, of the British Bankers' Association, told BBC Radio 4's Today programme that banks had to keep capital as a safety net, and the money some banks were given by the government was "to absorb losses".
She insisted that banks were still lending money.She insisted that banks were still lending money.
Would it be right to force banks to lend? What else would you like to see from the pre-Budget report? Send us your views and experiences using the form below: What would you like to see from the pre-Budget report? Send us your views and experiences using the form below:
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