Brown talks tough in defence of Britain's economy

The public finances are to plunge £20 billion into the red this year, Chancellor Gordon Brown disclosed today.

Delivering his Pre-Budget Report to the House of Commons, he said net public sector debt would be £9 billion more than he predicted at the time of last Budget in April.

The Chancellor blamed the worsening state of the public finances on the global economic slowdown, which he said was the "worst for 30 years".

He said that growth in the UK this year would be just 1.6% against a forecast of 2% to 2.5% at the time of the Budget.

However, the Chancellor dismissed suggestions that he should cut the Government's ambitious spending plans for schools and hospitals.

"It would lead directly to depressed demand and rising unemployment and a return to the familiar boom and bust approach," he said.

"The hard won stability would be put at risk."

In a clear reference to the firefighters' dispute, Mr Brown warned that public sector pay rises had to be sustainable and justified by productivity increases.

The 'Iron Chancellor' told MPs that the Government could not yield to "inflationary and unjustified pay settlements".

Mr Brown tried to put the best possible gloss on the nation's prospects, telling MPs that last year, of the major economies, the British economy was the fastest growing

He added: "This year, 2002, amidst the worst global slowdown for nearly thirty years, the British and North American economies will grow faster than all other major economies.

"I can report that next year - in 2003 - Britain and North America are now forecast, even in a still uncertain and unstable world, to continue to be the fastest growing of all the major economies."

Among Mr Brown's pledges today were:

• A drive to "root out abuse of the VAT regime"

• An opening up of competition for Government contracts

• Help for small and medium-sized businesses, including extension of eligibility to the Small Firms Loan Guarantee Scheme and 2,000 new Enterprise Areas

• £75 million over three years invested in promoting the teaching of enterprise in schools and colleges.

Mr Brown said working families tax credit would be extended to single adults and couples, aged 25 and over, without children and couples earning less than £14,000 a year and single people earning less than £10,500 will receive employment credit.

He said the starting level for the new child tax credit, taken with child benefit, would be £1,400 a year for those with incomes below £50,000, between £800 and £1,400 for those on up to £58,000 and for two million lower income families £2,800 for the first child, and £4,800 for a two-child family.

The skilled migrants programme to recruit workers from overseas will be expanded.

Mr Brown said the Government would consider new tax and national insurance incentives to expand employer childcare, broadening eligibility to childcare credit and improving time off flexibility.

The Chancellor also announced that the duty on bioethanol road fuel would be cut by 20p per litre.