Downing Street plays down economic 'Plan B'

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Downing Street has tried to play down reports senior officials are preparing a "Plan B" in the event of a sharp economic downturn.

But the prime minister's official spokesman did not deny the existence of such a document.

According to the Financial Times the confidential paper was written by cabinet secretary Sir Gus O'Donnell.

It suggests a series of measures which could be implemented if the economy stalls, the newspaper reports.

It suggests the Treasury should look at what policy tools would be available in the event of a sharp downturn.

The first option would be to extend quantitative easing, the FT said.

The Bank of England could also lend directly to business by buying commercial bonds.

A third option, the newspaper said, could be tax cuts, which would represent a major U-turn for the coalition which is poised to increase VAT.

The Prime Minister's official spokesman said ministers had not commissioned the report, saying "they are very clear that the plan we have is the right plan".

He added: "It is quite normal for government officials to be thinking about alternative scenarios and doing some thinking around that. I don't think it is anything out of the ordinary.

"It is completely normal for the Treasury to be thinking about different scenarios for the economy - what might happen in financial markets. You would expect them to be doing that kind of work."

For Labour, shadow chancellor Alan Johnson said: "Even David Cameron's top civil servant thinks he needs a plan B on the economy. The truth is he shouldn't be gambling with growth and people's jobs in the first place.

"No other country is following the risky path the Tories and Lib Dems have set the country on. They should think again about their plan for a £13bn VAT rise in just three weeks' time."