Prime Minister Gordon Brown called on governments around the world to coordinate taxes and spending policies to shore up a slowing world economy, his strongest signal yet that he will cut tax in the UK.
The British government wants "better international coordination of fiscal and monetary policy, recognizing the immediate importance of this coordination for stimulating economic activity," Brown told bankers in London.
Brown's comments set out the UK's position before a meeting of world leaders in Washington on November 15. A coordinated program would give Brown's government political cover to allow the Treasury budget deficit to swell when it delivers its semi- annual economic statement this month or next.
Britain's economy shrank in the third quarter, prompting a political consensus in favor of tax cuts. The Conservative opposition, which last month chided Brown's plan to borrow and spend more as the economy slumps, today said it will accept tax reductions that are funded by cuts in future spending.
"The first and best immediate help we can give is to leave people with more of their own money through the tax system," Conservative leader David Cameron said. The Liberal Democrats have been calling for tax cuts since July 2007.
Next year, Britain's economy may shrink 1.3%, the most in the Group of Seven nations, according to the International Monetary Fund. The Washington-based lender expects a contraction of 0.7% in the US, 0.5% in the nations sharing the euro and 0.2% in Japan.
Global Stimulus
There are already signs that other countries are ready to heed Brown's call. China, the world's fourth-largest economy, announced a 4 trillion yuan ($US586 billion) stimulus plan yesterday, saying the funds will be used by the end of 2010 as part of a "proactive fiscal policy."
A similar message came yesterday from Sao Paulo, where finance ministers from the Group of 20 nations met over the weekend to lay the groundwork for the heads-of-state summit in Washington. Ministers agreed to act "urgently" to bolster growth as the world's leading industrialized economies battle recession, according to the G20 statement.
Japanese lawmakers approved a 1.8 trillion-yen supplementary budget as part of a stimulus package on October 16, and Prime Minister Taro Aso on October 30 promised to pump an additional 5 trillion yen into the economy. German Chancellor Angela Merkel on November 5 announced a 50 billion-euro ($US65 billion) stimulus package to spur economic growth.
American Measures
In the US, Democrat lawmakers are considering passing two stimulus measures, one during a so-called lame duck session this month and another after President-elect Barack Obama and the larger Democratic majority in Congress take office in January.
"Further fiscal stimulus designed to bridge the gap until monetary policy becomes fully effective can be expected" around the world, said Holger Schmieding, chief European economist at Bank of America in London.
In Britain, Brown and Chancellor of the Exchequer Alistair Darling will set out tax and spending plans this month or next. Brown has said he's ready to increase borrowing to ward off recession and that he will bring forward some spending.
"There is now a growing international consensus that especially for those countries with low debt like the UK, maintaining essential public investment is the right and sensible approach, allowing a temporary and affordable increase in borrowing to support growth," Brown told bankers in London.
Brown's View
After committing more than $US3 trillion to bail out the banking system, policy makers, Brown said, must now turn to "international co-ordination of fiscal and monetary policy."
"What I am determined to do is to get all countries around the world trying to get their economies moving again, and one way you can do that is by putting more money into the economy by tax cuts or by public spending rises," Brown said in an interview on GMTV.
Spending is already increasing even though the inflow of tax receipts slows. Since March, Brown's government delivered tax cuts and spending increases worth 4.8 billion pounds ($US7.6 billion) to give relief to low-income earners, delay an increase in fuel duties and to help homeowners with mortgages and stamp- duty taxes on property purchases.
Britain had its biggest budget deficit since 1946 in the six months through September. Economists say the shortfall may reach 7% of gross domestic product over the next two years, more than double the 3% limit set down by the European Union.
While central banks from Washington to London have reduced interest rates at unprecedented speed, easier fiscal policy may work more quickly in cushioning the world economy amid the current crisis.
Monetary policy, already near its loosest in history, acts with a lag and is less effective when financial systems are frozen, economists say. Central bankers including Bank of Italy Governor Mario Draghi and Federal Reserve chairman Ben S. Bernanke are among those recommending action from governments.
