GORDON BROWN is planning a final public spending spree to help pull the economy out of recession and put pressure on the Conservatives over their plans for deep cuts.

The prime minister is keen to use the autumn pre-budget statement to announce a new “fiscal stimulus”, with billions of pounds of extra money for housing, infrastructure projects and training.

Recent figures showing that Britain is still in recession have convinced Brown that more spending will be required next year to support any faltering recovery.

Brown also hopes the stimulus package will open a new dividing line between Labour and Conservative plans over the public finances.

“At the next election we need a clear story to tell about how Labour will support the economy through investment while the Tories would choke off the recovery with draconian cuts,” said a cabinet source.

However, the proposals have caused alarm among Treasury officials who fear any increased spending could upset the financial markets, making it harder to service the growing national debt.

At last week’s cabinet meeting, a discussion over the latest economic data hinted at the tension between No 10 and the Treasury. Alistair Darling, the chancellor, warned ministers of tough times ahead and stated that any new projects would need to be “paid for by savings elsewhere”.

By contrast, Brown spoke of the importance of not withdrawing “support for the economy”.

It is also understood that there have been a series of disagreements in the National Economic Council, Brown’s “war cabinet” for the recession, where Darling has called into question new schemes to “support” the economy.

The pre-budget report, expected early next month, is likely to retain the pledge made in the spring to halve the public spending deficit, currently £175 billion, by 2014.

Ministers are now debating the budget for the 12 months beginning in April 2010.

Under current Treasury forecasts, expenditure will rise next year by £30 billion to £700 billion.

However, most of the increase is accounted for by debt interest and social security payments, while capital investment in housing and public services would fall in real terms.

Planned increases in taxation next year, with the return of Vat to 17.5% and a new 50% income tax band for those earning £150,000, mean that overall there will be a fiscal “tightening” under current plans.

“What is being looked at seriously is whether we need further increases in spending next year,” said a Labour source. “At the same time we will need to show that we can take the tough decision to control spending in future years.”

Robert Chote, director of the Institute for Fiscal Studies, said: “There is a perfectly respectable case for a deeper and longer fiscal stimulus.

“We are almost unique in the G20 in that we do not currently have a stimulus plan for 2010-11.

“However, were there to be a stimulus the government would have to be even more convincing to voters and the financial markets that they have credible plans to repair the public finances in the longer term.”

The Tories have stated that they would bring down the deficit further and faster than Labour and would begin cutting public spending immediately if they win the election next year.

George Osborne, the shadow chancellor, laid out a detailed “austerity package” at the Conservative conference last month with £23 billion of cuts to Whitehall spending, quangos and public sector pay.

A No 10 spokesman said: “The position has not changed. We have announced our plans to support the economy going forward.

“The Tories making cuts now and cuts next year are putting the recovery at risk.”

Times Recommends

• How I lost the gift of joy for a while
• Why Ann Widdecombe has got it wrong
• Alas, it’s the end of the road for petrolheads