Gordon Brown tonight called on the world's most powerful industrial nations to agree a programme of immediate and coordinated tax cuts to prevent the global economy sliding deeper into recession.

Arriving in New York for this weekend's unprecedented gathering of the leaders of the world's leading 20 economies, the prime minister said the need for a "fiscal stimulus" both for the UK economy and the world had increased after an autumn in which accelerating job losses had intensified fears of a deep and lasting slump.

Brown proposed a four-point plan which he hopes will win support at tomorrow's summit and help tackle the most severe financial crisis for 90 years.

"By acting now we can stimulate growth in all our economies," he said. "There is a need for urgency. The cost of inaction will be far greater than the cost of any action."

Brown believes an agreement by the G20 this weekend will provide his government with the political cover it needs to finance a multibillion-pound package of tax cuts in the upcoming pre-budget report.

"For Britain, a fiscal stimulus is the right course, as Mervyn King [governor of the Bank of England] made clear today, and we will be setting out our proposals in the pre-budget report," he said.

Brown will argue that countries cannot rely on interest rate cuts alone in the face of the wider economic crisis, and that the impact of tax cuts or higher public spending will be lessened if only a handful of countries take part. "It is now becoming increasingly accepted around the world that a temporary and affordable fiscal stimulus is needed. This will have most impact if it is coordinated internationally."

Last night George Bush admitted the global financial system needed reform, but insisted that the credit crunch was not a failure of the free market system. Speaking at Federal Hall on Wall Street, he said while financial markets needed some new regulation and more transparency, free trade should not be restricted. "The answer is not to try to reinvent that system. It is to fix the problems we face, make the reforms we need, and move forward with the free market principles that have delivered prosperity and hope to people all across the globe," he said.

"While reforms in the financial sector are essential, the long-term solution to today's problems is sustained economic growth. And the surest path to that growth is free markets and free people."

The scale of the problem facing Brown was underlined yesterday as the pound fell to a six-year low against the dollar, ending the day at $1.48. It also ended at an all-time low against the euro of almost 85 pence as traders priced in more interest rate cuts in the UK following Wednesday's bleak outlook from the Bank of England.

Figures confirmed that Germany, the world's third largest economy, had entered recession. The Organisation for Economic Cooperation and Development yesterday predicted the world's economies were heading into a "protracted recession".

The summit is seen by Downing Street as a crucial stage in tackling domestic and international problems.

"This is a global problem that requires a global solution. Only by acting with our international partners can we address the challenging economic circumstances affecting families and business in Britain." Progress was urgently needed in three other areas, Brown said.

• To identify and rectify the weaknesses of the international financial system exposed during the banking crisis.

• For rich countries to pump more money into the International Monetary Fund to support developing countries.

• Brown will push for world trade talks which opened in 2001 but finally broke down in the summer to be reopened and concluded by the end of this year.

Government officials are concerned that the meeting is being chaired by the outgoing President George Bush rather than president-elect, Barack Obama. They fear it means that Washington is less focused than other countries on making firm commitments. Brown will not be meeting Obama personally on his two day trip but his officials will be meeting Obama's transition team.