Mandelson predicts tax rises to pay for £1,000 giveaway to poor families... but only after the recession is over



Lord Mandelson admitted that readjustment would be necessary after any tax cuts

Peter Mandelson has predicted tax rises will eventually be needed to pay for the giveaway due to be unveiled by the Government on Monday.

He described the potential pain ahead as 'adjustments' that may be necessary once the country has emerged from recession.

The Business Secretary weighed in behind Gordon Brown's call for an urgent 'fiscal stimulus' to help jolt the economy out of recession.

'You are talking about the immediate term - when taxes may be cut, alongside spending maintained, if not increased in certain key areas of government activity, on the one hand - and a medium-term adjustment some years ahead,' he told BBC's Today programme.

He said cuts 'have to be targeted at segments of the population who are likely to increase their spending'.

But the Business Secretary said any re-adjustments to take account of higher borrowing now would only occur after Britain has emerged from recession.



Last night, Mr Brown came under pressure from the International Monetary Fund to bring forward a programme worth about £30billion - or £1,000 for every family.



IMF managing director Dominique Strauss-Kahn called for leading economies to approve a fiscal stimulus equal to 2 per cent of GDP.

This would result in a 2 per cent increase in growth, he predicted.

Asked where the stimulus was needed, he said: ' Everywhere - everywhere where it is possible, everywhere where you have some room concerning debt sustainability. This effort has to be made.'

But Downing Street sources said Mr Brown was considering more modest plans. One said: 'Needless to say that proposed scale of stimulus is not where we are for the UK.'

Yesterday the Chancellor signalled that the as-yet uncosted measures to be announced in the Pre-Budget Report next week are likely to take effect immediately.

Gordon Brown walks with the President of the European Commission, President Barroso, inside 10 Downing Street this morning

Ministers want to increase shoppers' spending power before Christmas.



Although he would not be drawn on the precise nature and scope of the tax breaks, Alistair Darling said: 'If this is going to work here or anywhere else, you need to do something decisively and you need to do it quickly, so that it has an effect as quickly as you possibly can.'

China, Japan, Germany and Australia are among the countries which have already announced stimulus packages.



The policy also won backing at the weekend's global finance summit in Washington.

In New York last week, Mr Brown said he wanted to boost the incomes of those 'with a propensity to consume', adding that lower-income households were 'more likely to spend when their credits are higher'.

Recent tax cuts in America partly failed to boost the economy because taxpayers saved half their windfall and didn't spend it.

Ministers will also begin to push the idea that higher public spending is needed to boost jobs.



The Pre-Budget Report could signal moves to bring forward planned works, such a refurbishing schools, building hospitals and developing transport networks.

But all such programmes will have to be funded through extra state borrowing.

The Tories said Mr Brown was trying to 'max out the credit card' at the expense of future generations.

Shadow Chancellor George Osborne refused to support the Government.



'The choice in British politics is going to be funded tax cuts from the Conservative Party, and a tax con by the Labour Party that has abandoned 15 years of rhetoric on fiscal stability,' he told BBC1's Andrew Marr Show.

Meanwhile, a report from the Centre for Policy Studies thinktank suggests a 'toxic' mix of high Government and consumer debt has left Mr Brown little room for manoeuvre.

'Excessive Government debt restricts the ability to cut taxes responsibly in the attempt to restart the economy,' it concludes.