Darling: We won’t spend our way out of recession

CHANCELLOR Alistair Darling will seek to reassure the City tonight that he will not go on a spending "splurge" to combat the recession.

Amid Tory claims that the Treasury has been spooked by the plunge in sterling, Mr Darling was set to declare that he will set out a clear path to bring borrowing back under control over the medium term.

He stressed that the Government did not want to increase spending overall, although projects could be brought forward to help in the downturn.

Mr Darling's words came after Gordon Brown and Tory leader David Cameron clashed bitterly over the economy.

Mr Cameron said that there was now a clear split between the Prime Minister's desire for a spending rise and the Chancellor's need to balance the public finances. He claimed Mr Darling was now "having to desperately back off" talk of a Keynesian-style boost for public spending.

The Chancellor was set to use his annual Mais lecture to Cass Business School to signal that Labour's fiscal rules will be changed to allow a temporary rise in borrowing. Mr Darling will say that to "apply these rules rigidly in today's changed conditions would be perverse".

He will say: "We would have to take money out of the economy, exacerbating an already difficult situation. We must respond to the challenges and uncertainty we face today — supporting the economy now and maintaining public investment — while at the same time ensuring that we live within our means in the medium term.

"These are extraordinary times. The economy is facing unprecedented global shocks, and we need a new approach that is fit for these new times."

Mr Darling will say that he believes in a "combination" of rules and discretion of governments to bend them.

He added that he would set out plans at the Pre-Budget Report "that demonstrate our commitment to keeping the public finances on a sustainable path". He also hinted that inflation could go back up again over the longer term.

During Prime Minister's Questions, Mr Cameron was scathing about Mr Brown's claim in 1997 that "you cannot spend your way out of a recession".

"Isn't the truth that you have been going around telling everyone you are the new John Maynard Keynes with your plan for a spending splurge," Mr Cameron said.

"Meanwhile, the pound has fallen further than in any previous devaluation and the Chancellor is having desperately to back off."