Gordon Brown warned of increasing unemployment on Monday as he defended plans to raise government borrowing to mitigate the impact of the looming recession.

The prime minister admitted implicitly that the downturn will cost increasing numbers of jobs, telling a business audience in London that government efforts were focused on helping people to find new employment.

“I can’t promise people that we will keep them in their last job if it becomes economically redundant,” he said said. “But we can promise people that we will help them into their next job.”

Mr Brown’s spokesman later declined to reveal forecasts for the projected rise in the jobless total, currently 1.7m, but said: “Clearly these are going to be tough times for the economy in the period ahead.”

Lord Mandelson on Monday issued a stark warning about the scale of the problems. “We are facing an unparalleled financial crisis,” the business secretary said during a visit to Moscow.

“I don’t think yet people have realised what the impact is going to be on our real economy, on businesses and jobs back home.”

The impact of the downturn on “real economy” issues, such as jobs and fuel bills, is at the heart of a political battle that will help to determine the outcome of the next general election.

A poll on Tuesday confirms fears in Tory ranks that David Cameron, the party’s leader, has yet to capitalise effectively on Mr Brown’s alleged mishandling of the economy, instead allowing the prime minister to woo back voters with his perceived competence in responding to the crisis. The Tory lead over Labour has shrunk from 12 to eight points since last month, putting Britain on course for a hung parliament, according to the ComRes poll for the Independent.

The government is continuing to focus on measures to help small businesses. Alistair Darling, the chancellor, and Lord Mandelson are expected on Thursday to use a meeting with the European Investment Bank to set out plans to bring forward loans to help smaller companies. Mr Brown on Monday pledged to do “whatever is necessary” to ensure that banks swiftly moved to increase lending to businesses and homebuyers.

The prime minister defended the use of fiscal stimulus to “help people through difficult times”, stating that “the responsible course of government is to invest at this time to speed up economic activity”. But he stressed that as Britain came out of the downturn, with tax revenues recovering on the back of increasing economic activity, “then you would want borrowing to be a lower share of your national income”.

The Tories accused Mr Brown of seeking to make a virtue out of a necessity for which he was personally largely responsible. George Osborne, shadow chancellor, said: “The government is being forced to borrow more because Gordon Brown is a man with an overdraft not a man with a plan.” He said Mr Brown “presents it as a strategy but it is actually a consequence of his great failure that borrowing is already out of control”.

Business reacted warily to the prospect of increased short-term spending and borrowing. John Cridland, deputy director-general of the CBI employers’ body, said: “We will look closely at any new Treasury plans when they appear, but actions to alleviate recession must be carefully targeted to ensure that the benefits outweigh the cost to the taxpayer.”

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