Oct. 19 (Bloomberg) -- The U.K. government will step up public spending projects and increase borrowing in a bid to curb the country's biggest economic slump since 1991, ministers including Chancellor of the Exchequer Alistair Darling said.

The U.K. will prioritize spending on housing, energy and small businesses as well as bring forward construction projects on schools and hospitals, Darling told the Sunday Telegraph in an interview published today. The government will increase debt to provide the funding, the newspaper reported him as saying.

``We will get the country through this period in every way we can,'' U.K. Business Secretary Peter Mandelson said on the BBC's Sunday A.M. television show today. ``The costs of doing too little will be greater than if we take the action to maintain spending and investment in the real economy, in public services and infrastructure.''

Prime Minister Gordon Brown's response to the financial crisis has given him a boost in opinion polls as the economy heads for a recession. The government, which will formally announce spending plans in Darling's pre-budget report in the next few weeks, this month bought majority stakes in Royal Bank of Scotland Group Plc and HBOS Plc, two of the country's biggest lenders, to prevent them from failing.

Support for Brown's Labour Party increased by 4 points to 31 percent from a month earlier, a poll by ComRes for the Independent on Sunday showed today. Labour still trail the opposition Conservative Party, which rose 1 point to 40 percent this month. The Liberal Democrats' support fell to 16 percent. The poll was of 1,007 people on Oct. 15 and Oct. 16.

Next Election

While a 54 percent majority of Britons say Brown has handled the crisis well, only 13 percent say they are now more likely to vote for Labour in the next election, which must be held by mid- 2010. By contrast, 22 percent say they are less likely to vote for Labour, a separate poll by ICM published in the News of the World today showed.

Brown, whose bank-bailout plan that has been emulated across Europe and in the U.S., is now pushing for tighter regulation and global bank supervision, including a strengthening of the International Monetary Fund.

President George W. Bush, French President Nicolas Sarkozy and European Commission President Jose Barroso said in a joint statement after meeting yesterday that they will continue pressing for coordination, and they will ask other world leaders to join in a series of summits after the Nov. 4 U.S. presidential election.

Recession

The U.K. is already in a recession and will contract 1 percent in 2009, Ernst & Young's Item Club will say in new forecasts to be published tomorrow. The group, which uses the same forecasts as the Treasury, predicts that unemployment will rise to 2.2 million, the highest since 1996, and the budget deficit will climb to 92 billion pounds ($159 billion).

``At a time when the economy is under such pressure, it's right to increase borrowing,'' said Yvette Cooper, Chief Secretary to the Treasury, in an interview on Sky News's Sunday Live television program. ``Everybody recognizes we've got tougher times ahead.''

Cooper told the Observer newspaper that the government will tighten restrictions on when banks can repossess homes after borrowers fall behind on mortgage payments. ``We want stronger rules across the board,'' she told Sky News.

The Conservative Party today called for measures to allow small businesses to defer value-added tax bills for up to six months to offset cashflow difficulties posed by banks tightening lending criteria.

`Rescue' the Economy

``It was right to rescue the banks, because everyone depends on them, but now we need to rescue the real economy and stop jobs being lost and families suffering unnecessarily,'' said George Osborne, the Conservatives' spokesman on economic affairs, in a press release.

Banks are hoarding cash in the global crisis that has cost financial institutions more than $600 billion in losses and writedowns so far. Concern that the seizure in credit markets will trigger a global recession has erased $27 trillion in value from stocks worldwide, dragging the U.K. benchmark FTSE 100 down 37 percent this year.

``This collapse in confidence that led to collapse in liquidity is unprecedented,'' said Hector Sants, chief executive officer of the Financial Services Authority, on BBC television today. ``We absolutely acknowledge our share of responsibility'' for not working more with banks to recognize lending risks. Still, ``we have performed very, very well in the past 15 months. We've done a good job.''

Sants apologized for the financial regulator's supervision of banks in the run-up to the crisis in a speech on Oct. 15. Adair Turner, who became FSA chairman a week after Lehman Brothers Holdings Inc.'s bankruptcy last month plunged the world's economy into unprecedented volatility, said last week regulation needs to be stepped up.

Turner promised that any new rules won't put London at a competitive disadvantage with other financial centers, according to an interview in the Sunday Telegraph published today.

To contact the reporter on this story: Brian Swint in London at bswint@bloomberg.net.

Last Updated: October 19, 2008 11:42 EDT