Cameron accuses Brown of binge as PM promises tax cuts

But Tory leader David Cameron said the Government was "desperate to go on a borrowing binge," which would have to be paid for by tax rises later.

Mr Brown branded the Tories the "do nothing party" and said fiscal expansion was needed to bring back growth into the economy.

He said: "We are going to be the party that helps people through this difficult downturn.

"The Conservative Party have changed their policy yet again and now they are unable to help people."

Mr Brown again warned the Tories against "talking down" the pound and spoke of the perils of deflation.

As Commons question time got under way, Tory Philip Dunne (Ludlow) demanded: "Can you explain why the pound has lost over a quarter of its value against the US dollar in less than four months.

"Do you still believe what you said in 1992 that a weak currency arises from a weak economy, which in turn results from a weak Government?"

Amid Tory jeers, Mr Brown responded: "I would advise Conservative Members not to talk down the pound.

"And I would advise Conservative Members to take the advice of Lady Thatcher, who said that trying to help the speculators and talk sterling down is the most un-British way."

Challenged by Labour's Gordon Marsden (Blackpool S) on the need for action to help people hit by the economic crisis, the Prime Minister said: "I think what people want is real help for families and businesses now.

"People are beginning to understand that what is happening in the global economy is that while last year we had a major inflationary problem because of oil prices and food prices - in the coming year inflation will fall.

"It will enable us to put fiscal policy in support of monetary policy - and what I mean by fiscal policy is real help and real support to families and businesses now.

"That is the way for the economy to grow in the future."

Mr Cameron said: "Bank reconstruction, which we all support, hasn't yet had the desired effect in terms of ensuring lower interest rates are passed onto businesses and credit is genuinely freed up."

Mr Brown said: "I think we were right to recapitalise the banks. This has now been followed in every country of the world.

"The issue now is how the banks will resume funding to small businesses and homeowners.

"We are in discussion with the banks ... about, first of all, how HBOS, Lloyds TSB and Royal Bank of Scotland can achieve their promise that they will have activity for lending and marketing of lending at the level of 2007.

"Secondly, how all the banks can resume funding.

"We will be bringing forward proposals very soon indeed."

Mr Cameron raised two specific cases: "First, a manufacturer in Lancashire employing 120 people now being charged £16,000 for a modest overdraft facility.

"Even more dramatically let me give you an example of a small business in Leicestershire which wrote to us saying it had never breached its banking covenants, never exceeded its overdraft limit - yet it's had its overdraft facility withdrawn and cheques bounced.

"Don't cases like this show that what's been done so far - which we support - has not yet worked properly and we need to do more on the credit side to make sure that small businesses like this aren't strangled."

Mr Brown said: "I've said all along that the banks have got to accept their responsibilities. We have done what we can. They have to accept their responsibilities to act in what is a manner that is responsible and fair.

"I'll be happy to look at the individual cases you've brought forward."

Mr Brown outlined help being given to businesses, including the monitoring of what banks were doing in each area.

"Despite the predictions from the Tories, the Bank of England has also reduced interest rates and that must flow through to small businesses as it has to homeowners," he said.

Mr Cameron said: "You say you've done what you can. Don't we need to consider doing more?

"This is about small businesses in the real world that are struggling and want to know how we're going to get credit moving again.

"Are you prepared to consider more direct measures to get lending to business re-started, including the establishment of new institutions to underwrite lending so businesses can get the money they need.

"Are you contemplating any further taxpayer investment in the banking system?"

Mr Brown said he was reminding the House of action taken, which had been opposed by the Tories.

"The issue now is real help for small businesses and families. Real help will mean that there will have to be some fiscal expansion to make that possible.

"If you're now telling me you will support that fiscal expansion ... then that is a change from yesterday, but a welcome change indeed.

"We will take all the measures that are necessary to help businesses get the loan capital they need.

"But the Opposition is going to have to be consistent. If they are asking for fiscal action now, that was the opposite of what they were doing yesterday."

The Opposition leader said Mr Brown had not answered his question about additional taxpayer support and people should draw their own conclusions from that.

"Turning to the Pre-Budget Report, I know you are desperate to go on a borrowing binge.

"Everyone wants to know how you are going to pay for it. The Employment Minister, Business Secretary and the Chancellor have all said taxes will have to rise. Isn't that true?"

Mr Brown side-stepped the question to Tory protests, saying: "You're calling for action ... that means there will have to be a fiscal expansion to help small businesses.

"The problem is the Conservative Party have set their face against a fiscal expansion.

"Why are we proposing a fiscal expansion .... the reason is to bring back growth into the economy.

"The best way of dealing with tax issues is to secure growth in the economy and to secure tax revenues.

"The Tories are the do nothing party when it comes to now and they will let the country down by their actions."

Mr Cameron said the Prime Minister seemed to have forgotten the difference between monetary policy and fiscal policy.

"You love to lecture on economics but for you it's all about the politics," he said. "You've made your policy choice about fiscal policy. Now you've got to tell us how you are going to pay for it.

"The Business Secretary (Lord Mandelson) - not a man known for his candour - said 'you have to make a structural adjustment later on'.

"In plain English that means tax rises.

"On this side, we've made our choice. It's called spending restraint. Isn't it clear that you favour tax rises?"

Mr Brown said Mr Cameron had warned in September that the "'light-weight thing to do would be to make unrealistic promises about slashing Labour's spending plans"' and labelled this a "light-weight response to the problems we have at the moment".

To Labour cheers, he went on: "Let me tell you the difference between fiscal and monetary policy.

"You propose we only use monetary policy. Yet only a few days ago the shadow chancellor (George Osborne) was saying it would be impossible for the Bank of England to cut interest rates because of our fiscal action and the Bank cut interest rates by the largest margin for years - 1.5%.

"Everybody in every continent around the world is saying very clearly monetary policy is not enough. You want to only use monetary policy. But everyone - right wing governments, left wing governments - is saying monetary action will not be enough and that's why we need to use fiscal policy.

"That is real help for people and families now.

"If you are setting your face against that, you are setting your face against helping families and business through the difficult downturn they face."

To Labour laughter, Mr Cameron quoted former economic adviser to the Government, Derek Scott, who had been asked "about the Government's claim that this recession was largely not of their making. His answer was 'that is largely drivel, frankly'.

He went on: "Let me use some words you might be very familiar with. 'Unfunded tax promises simply don't add up. They mean tax cuts before an election leading to tax rises after an election'.

"That's what you said as Chancellor just a few years ago.

"If you don't agree with your employment minister, Chancellor or Trade Secretary, can you tell us do you agree with yourself?"

Mr Brown said only a few days ago the Tory leader had said borrowing had to be allowed to happen. "Then you changed your mind and you are depriving people of real help for businesses and families.

"The issue comes down to this. Do we want to help people through difficult times - a downturn that every country in the world has faced, a downturn that even the Americans agree started in America.

"Do we want to help people through difficult times or do we want to take the advice followed in the 1980s and 90s by the then Conservative Government and do absolutely nothing to help people in time of need.

"We will act. They would refuse to act."

Liberal Democrat leader Nick Clegg said his party had supported the bank bailout plan because they had been told there would be "strings attached" and that banks would be forced to lend.

"But every member of this House will have heard of the way in which local companies are receiving emails from their banks forcing them out of business overnight," he told Mr Brown.

"So what evidence - what concrete evidence - do you have to show that your bailout plan is working?"

The Prime Minister said the first step had been to "provide liquidity to the banking system" and the second thing had been to recapitalise the banks.

He said: "Some of these banks would not be in existence today had we not taken the action we did to recapitalise them, and I'm pleased that you supported us on this.

"The next thing to do is to secure the funding that is necessary for small businesses and for mortgages.

"And I say that we have expanded the small firms loan guarantee scheme, we have also arranged for £4 billion of funding from Europe, we are meeting banks and building societies almost every second day to look at the issues - both technical and the other reasons why the lending has not happened in some cases - and we are ready to take further measures if necessary.

"But I hope you agree with me that if we take further measures, that may cost money as well as costing banks changes in the way that they operate and I hope you will support us when we do it."

Mr Clegg replied: "That is an astonishingly complacent reaction.

"We all know you like to strut your stuff on the world stage, telling everybody that your plan is better than their plan - your plan isn't working where it counts, here at home.

"The bankers can't believe their luck, they have got billions of pounds of taxpayers' money, they can keep their bonuses and they don't have to lend to companies.

"If you are too weak to get tough on the banks, will you at least consider ways of lending directly serious money to businesses instead."

Mr Brown said countries across the world were struggling to get lending restarted.

"First of all, under the scheme that we have they have not taken their bonuses as members of the board," he said.

"Barclays has announced yesterday that they will not take their bonuses as members of the board, so we are having some success and I hope we will have more success in persuading the executives of these companies to take full responsibility.

"As far as the resumption of lending is concerned, every country in the world is facing this problem, we are all looking at what we can do. What has happened - let us be honest - is from a period where banks were prepared to take any risk they are averse to risk and we have got to turn that round.

"And that means that we are going to have to build confidence in the future of the financial system, and some of the measures we have already taken but I hope you will support the measures further that we will take."

Tory Alistair Burt (North East Bedfordshire) returned to the earlier question asked by Mr Dunne.

He said: "If it were true that the economy were better placed than any other to come out of the recession, just what is your explanation of why our currency has fallen so far and so fast?"

Mr Brown replied: "What makes our economy in a good position to deal with the problems that we face are first of all that we are able to bring interest rates down - that was not possible in the recession of the early 1990s, when interest rates were 15%.

"What makes it also possible for us to be strong is employment remains high in this country, three million more than in 1997 - something that was not possible in the downturn of the early 1990s.

"What is also strong about our country is that company balance sheets outside the financial sector are in a generally healthy position and that is something that will stand us in good stead.

"And what also stands us in good stead is that we are making the right decisions to come through this, not the wrong decisions."

The SNP's Mike Weir (Angus) said banks were treating businessmen with "contempt" by refusing to pass on interest rate cuts.

Tory Bill Wiggin (Leominster) said the communique following the weekend's G20 summit in Washington made clear that policymakers should take responsibility for what had gone wrong in the world economy.

And he asked Mr Brown: "You signed up to that communique. You have been the policymaker for the past 11 years. Why can't you take responsibility and why can't you apologise?"

The Prime Minister replied: "Because what this section was referring to was financial regulation and what had happened principally in the United States of America.

"If the Conservative Party cannot accept that the problems that we are facing started with the sub-prime market in America - and they don't seem to be able to understand that even the regulators in America accept that it happened first of all in America - if they do not understand the sources of the problem, they are never going to be able to solve the problem."