Alistair Darling intends to raid future budgets to pay for massive public spending projects in an attempt to counter the economic slowdown.

Invoking John Maynard Keynes’s response to the Great Depression of the 1930s, the Chancellor said that he was bringing forward spending plans with an economic stimulus package paid for by borrowing. It could also wrongfoot the Tories.

The Government is bracing itself for bad news this week, with government borrowing figures today and, on Friday, GDP figures that could show the first quarter of negative growth, following zero growth between April and July.

The Treasury has confirmed it is looking at “fast-tracking” construction projects, including schools and medical buildings, housing and leisure centres. This would bring forward expenditure plans from 2010-11, potentially hitting Tory calculations for what they would do if they won the election that must take place by spring 2010.

“Much of what Keynes wrote still make sense,” Mr Darling told The Sunday Telegraph. “You will see us switching our spending priorities to areas that make a difference – housing and energy are classic cases where people are feeling squeezed.”

Mr Darling said it would be “wrong” to start taking money out of the economy by cutting spending or raising taxes. However, the three-year spending limits for each department, agreed in last year’s Comprehensive Spending Review, are not being reexamined, according to Treasury sources.

The stimulus package will give departments immediate access to future years’ budgets. This is to be funded in the short term by borrowing.

Justifying the expected increase in borrowing in the PreBudget Report, which could double from Treasury projections of £43 billion to £90 billion, Mr Darling said that Labour had reduced government debt during its first ten years in power. “We can allow borrowing to rise,” he said.

The Chancellor made clear yesterday that capital spending in health and education were likely to benefit from the public spending increase.

Details of how this will happen are uncertain, however, since many are dependent on Private Finance Initiatives, which depend on bank lending that has almost dried up. Currently £23.3 billion in infrastructure projects are funded in this fashion.

The £45 billion Building Schools for the Future, to overhaul every secondary school in England, is among those programmes for which spending could be brought forward. But there are concerns that rushing the scheme will result in shoddy workmanship and badly designed schools. Many existing projects are behind schedule. There are also questions whether departments might compromise the tendering and audit process in the rush to get projects “out the door”.

There could be a political cost to the Tories. They have pledged to divert £4.5 billion from the school building programme for their policy of helping teachers and parents set up their own schools. Yesterday they said that they doubted the Government could spend money at a fast enough rate to touch the £4.5 billion that the Conservatives have ring-fenced for their project.

The Conservatives would not say explicitly whether they would support a raid on future spending allocations – which could have an impact on the first term of a Tory government.

John Maynard Keynes

— John Maynard Keynes was born on June 5, 1883. He studied mathematics at Cambridge

— After the First World War Keynes joined the Treasury and, after the Versailles peace treaty, he published The Economic Consequences of the Peace, in which he criticised the war reparations demanded from a defeated Germany

— Keynes’s best-known work, The General Theory of Employment, Interest and Money, was published in 1936. He said that government action was often the route out of recession. The heart of the book was his idea that economic downturns are not necessarily self-correcting and, in certain circumstances, economies can get stuck

— Keynes argued that during a recession governments must pump money back into the economy by some means, such as spending on public works, to persuade individuals and businesses to save less and spend more themselves

— Between the wars, he amassed a fortune from the financial markets

— He led the British delegation to the Bretton Woods conference in 1944, and played a significant part in planning the World Bank and the International Monetary Fund. He died in 1946

Source: Times database

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