Emergency debate scheduled as MPs ask nervously ‘What is plan B?’

For all their nervous cheers for Alistair Darling's attempt to kick-start the stagnant economy, there are deep misgivings among Labour MPs over many of the measures in the Pre-Budget Report.

They applauded the extra help for pensioners and families, and the cut in VAT announced by the Chancellor, while the class warriors among them welcomed plans to step up tax on the best-off from 2010-11.

But with the national debt heading towards £1tr, backbencher after backbencher is asking: "What if it doesn't work? What is plan B?"

In a candid appearance before the Treasury select committee today, the Bank of England governor Mervyn King spelled out why Labour MPs are so anxious. He warned that the financial system was still gummed up - and that means small firms laying off staff or even going to the wall.

King signalled that further interest rate cuts could be on the way and warned further public cash could be pumped into the banks. He even refused to rule out the wholesale nationalisation of the banks – a move that would have been unthinkable over three months ago.

There are jitters too on the Tory side. Some Conservative MPs worry they could end up on the wrong side of the argument. Will opposition to Government spending plans allow Labour to portray them as tax cutters? And will their decision to vote against plans to reduce VAT make them seem penny-pinching?

On the plus side, George Osborne has shaken off any doubts about his survival as shadow Chancellor with a combative response to Darling. The prospect of him being replaced by William Hague – building since the Corfu yacht saga - has evaporated.

Osborne has also scored a victory in securing an emergency House of Commons debate on the Pre-Budget Report. He had complained that it was disgraceful that Darling's plans - "a reckless gamble" in Osborne’s words – were not to be thrashed out on the floor of the Commons. Today the much-maligned Speaker, Michael Martin, intervened to order a debate tomorrow afternoon. He might have his critics but in this instance his finger was on the national pulse.

The Mole: Pre-Budget Report

FIRST POSTED NOVEMBER 25, 2008