Gordon Brown told business leaders today that the best way to keep a long-term lid on UK tax rates is to make sure that the coming economic downturn is as short as possible.

As Alistair Darling, the Chancellor, prepared to announce a fiscal stimulus of up to £20 billion in this afternoon's Pre-Budget Report - including announcing a new top rate of tax of 45 per cent for high-earners - the Prime Minister told business leaders that now was the right time for Government to give the economy a boost.

"Simply letting the recession run its course, to say there is no alternative, is not an option," the Prime Minister told the annual conference of the CBI.

"We have seen in previous recessions how a failure to take action at the start of the downturn has increased both the length and depth of the recession. That was the mistake made in the recessions of the 80s and early 90s. the mistake made by the Japanese and the mistake made in the Asian crisis.

Expert View

Is the decision to raise income tax for the higher paid the end of New Labour?

Philip Webster, Political Editor

• More

• Post a comment

Related Links

• Tories attack Brown's record before giveaway Budget

• Analysis: is this the death of New Labour?

• Pre-Budget Report checklist

Multimedia

• Who leaked the 45% tax details?

"To fail to act now would be not only a failure of economic policy but a failure of leadership."

That last remark seemed to be aimed squarely at David Cameron's Conservatives, who have argued that increased public borrowing of the scope planned by the Government will just lead to higher taxes down the line. Borrowing is likely to soar to around £70 billion this year and to peak at around £120 billion next year.

But Mr Brown argued that borrowing now and investing in public services means the economy would be in better shape when it starts to emerge from the downturn some time next year. Mr Darling is expected to announce a new 45p income tax rate on those earning more than £150,000 a year - which would have included many of those in the audience this morning at the Hilton Hotel on Park Lane.

"Doing 'too little too late' would mean more damage, more deterioration - the loss of vital businesses - a weaker economy, lower growth, eventually greater fiscal problems and in that event, higher interest rates and higher taxes," the Prime Minister said.

"The best way for taxes to be low in the long-term is for us to ensure that the downturn is as limited in length and scope as possible. And that means help when help is needed, not when it is too late."

The main measure expected in today's Pre-Budget Report, which in a break with tradition has been widely leaked, is an immediate 2.5 percentage point cut in VAT, which will last until the beginning of 2010 and cost about £11 billion.

Mr Darling is also expected to cut income tax by £120 a year for those on the basic rate, announce plans to get banks lending to small companies again and bring forward school and hospital building projects.

The Prime Minister said that he would also be announcing further efficiency savings going beyond the £30 billion of savings already laid out in the Budget.

"For it is a broadly based economic recovery, combined with prudent tax, spending, and asset sale plans over the medium term, that will help us bring the government borrowing back down over the coming years," he said.

As Mr Brown spoke, activists from the environmental group Greenpeace scaled the Bank of England building, calling on the Government to step up investment in "green" industries.

Four campaigners used a ladder to climb on to the building, unfurling a huge banner which read "Green Is Good". Greenpeace said the stunt was designed to emphasise that the fiscal boost should extend to green technologies.

Mr Brown told the CBI that the Government would support investment in low-carbon projects to help ensure that Britain made the most of opportunities in "the environmental revolution". He said that worldwide, the green economy could be worth as much as $3 trillion a year by 2050, employing more than 25 million people. "I want Britain to benefit from these new jobs, with at least 1 million jobs in the green economy by 2030," he said.

In contrast to the Prime Minister’s focus on tax policy, Mr Cameron told the CBI that “monetary activism” - lower interest rates - should be the Government’s main tool to support the economy.

Appearing after Mr Brown, the Tory leader noted that the Bank of England’s Monetary Policy Committee considered a two-point in the base rate earlier this month, but scaled it back to 1.5 points because of an expectation of a fiscal stimulus in the Pre-Budget Report.

“We have consistently argued that Government must not do anything to make further interest rate cuts less likely,” he said.

Mr Cameron told the conference: “The CBI and the Conservative Party are agreed that monetary activism - lower interest rates and getting credit flowing again - is our top priority.

“As your director-general said last week, getting the credit markets working properly is much more important than the fiscal boost.”

He also accused Mr Brown of “misrepresenting” his position as one of inaction. “This is not walking on by,” he insisted. “This is offering sensible, practical and costed help for businesses and families through this difficult time.”

Times Recommends

• Lies and cover-up at MG Rover exposed by report
• High oil prices push manufacturing costs up
• Primark founder steps down as chief executive