Britain would face an even more severe recession without the multi-billion-pound tax cut and spending package that will be unveiled on Monday, Gordon Brown said yesterday.

In a dramatic attempt to raise the political stakes before the most important Pre-Budget Report since Labour came to power, he said that if he did not act now Britain would pay later.

The report will include measures to stem the number of repossessions as Mr Brown and Alistair Darling desperately try to soften the impact of the recession on families and businesses.

The Chancellor will announce on Monday that struggling homeowners will be given three months’ grace before lenders start repossession proceedings to give them time to renegotiate loans and seek financial help.

Schemes brought in three months ago allowing owners to sell parts of their homes to councils and to help the newly unemployed with their mortgage interest payments are to be widened and improved to make them available to thousands more families, The Times has learnt.

Banks are being told to let people in difficulties stay on in their homes, and the nationalised Northern Rock, which is said to have followed aggressive repossessing practices, has been told to change its ways. Courts are being told to consider alternatives before issuing repossession orders.

The moves emerged as the Prime Minister tried to kill off talk of a general election next June. He said that people should discount stories about an early poll, saying his “undivided attention” was on the economy.

He said that his father used to quote the old proverb “a stitch in time saves nine” and that the Conservatives, who oppose extra borrowing to fund tax cuts, were “making a big mistake”.

Kenneth Clarke, the former Conservative Chancellor, diverges from his own front bench’s line today by suggesting that VAT be cut from 17.5 per cent to 15 per cent.

In an interview with The Times he said: “If it’s possible to afford a fiscal stimulus I would go for VAT because the only case for a fiscal stimulus is to stimulate spending and consumer demand so the tax on spending is the one to go for. But it should be temporary.” He added: “There’s no point in being ultra-orthodox. A lot of people are going to be hurt by a dreadful recession. If you think a fiscal stimulus is going to do any good then you could strive to see if you can afford it.”

Mr Brown’s warning about “paying later” will be seized upon by his critics.

To reassure the markets that the Government has a plan to get the public finances back on course, Mr Darling will have to set out deferred tax rises and spending curbs to bring down borrowing, which could reach £120 billion within two years.

He will also unveil moves to improve lending to small companies through government guarantees for loans, and to require the banks to provide confidential information about their mortgage and small business lending.

Downing Street refused to rule out full-scale nationalisation of the banks in what appeared to be an attempt to pressurise them into changing their practices. Mr Brown said that the part-nationalised banks would be held to their commitments on lending.

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