Oct. 31 (Bloomberg) -- International investors may shun U.K. government bonds in future years as they lose confidence in Prime Minister Gordon Brown's management of the economy, the opposition Conservative Party said.

George Osborne, who shadows Chancellor of the Exchequer Alistair Darling in Parliament, attacked the Treasury's plan to increase spending and debt, saying it would saddle the next generation with higher taxes. The Institute for Fiscal Studies bolstered the argument by estimating Britain's fiscal position now is as bad now as under John Major in the early 1990s.

``In extremis, you can lose the confidence of the international markets,'' Osborne said in a speech in London today. ``Everyone assumes the only question is how much more does the British government want to borrow from the markets. Talk to former chancellors and they will tell you that at some point the question becomes how much more are the markets prepared to lend.''

Brown and Darling have said they will lift spending by the Treasury as the economy slips into its first recession in 17 years. The Labour government's popularity has risen as Brown pledged 50 billion pounds ($82 billion) to rescue cash-strapped banks and money to help pensioners and people on low incomes.

Gilt Sales

In March, the Treasury said it would sell about 80 billion pounds of gilts, about 37 percent more than the previous year. The bank rescue plan will add to those sales, though probably not all in the current fiscal year, which ends in April 2009.

Since Darling's annual budget statement, tax revenue has deteriorated, pushing up the deficit for the first six months of the year to the highest since 1946. Economists surveyed by the Treasury expect the shortfall to swell to 72 billion pounds in fiscal 2009 from 59.8 billion pounds last year.

The gap may reach 7 percent of gross domestic product over the next two years, more than double the 3 percent European Union limit. Labour defends the deficits, saying spending cuts would hurt the economy.

``Because of his willingness to create headlines on the hoof, Osborne has called it wrong at every turn,'' said Angela Eagle, a junior Treasury minister who reports to Darling. `` Osborne has got it wrong again.''

Labour Rebuttal

John McDonnell, a lawmaker who stood against Brown for the leadership of the Labour Party last year, said Osborne's words were no more than ``rehashed monetarism.'' His words are ``a recipe for large scale unemployment with ordinary people shouldering the burden of this recession,'' McDonnell said.

Osborne said the Conservatives won't ``borrow without limits in a recession.'' If the party won power in the next election, due by the middle of 2010, it would have lower borrowing and more leeway to reduce taxes than a Labour-led administration, he said.

Britain's budget deficit is deteriorating more sharply as the economy enters a recession than it did in the previous recession in 1991 under the Conservative administration led by John Major, according to the IFS.

The U.K. also has ``one of the largest structural budget deficits in the industrial world,'' the IFS said, a government- funded researcher.

``Labour is also going into a recession with a significantly higher level of debt than the Conservatives,'' the IFS said in a study published in London today.

Fiscal Stimulus

Since March, Brown's government delivered tax cuts and spending increases worth 4.8 billion pounds to give relief to low-income earners, delay an increase in fuel duties and to help homeowners with mortgages and stamp-duty taxes on property purchases. Darling says he will announce more fiscal measures in his pre-budget report in November or December.

Excluding liabilities linked to Northern Rock Plc, a bank nationalized in February, debt was 37.9 percent of GDP in September. That compares with International Monetary Fund estimates of 56.1 percent in Germany, 55.5 percent in the U.S. and 94.3 percent in Japan.

Limiting debt also would give the Bank of England scope to reduce interest rates, the Conservatives say.

Darling's ``talk of a spending splurge tries to give the impression of activity and action, when in fact it is the road to economic ruin,'' Osborne said.

To contact the reporters on this story: Gonzalo Vina in London at gvina@bloomberg.net

Last Updated: October 31, 2008 07:54 EDT