Bear market is no cause for worry, says Chancellor

Gordon Brown will seek to reassert his reputation as a prudent Chancellor and a New Labour moderniser with a call today for even greater private- sector involvement in public services.

In his first wide-ranging speech for months, Mr Brown will tell the Social Market Foundation in London that the economy and public finances can withstand recent stock market falls. He will insist that Britain is unusually well placed to weather the international collapse in equity markets precisely because its fundamental economy is sound, with record low interest rates, inflation and unemployment.

His comments will be made after Howard Flight, the shadow Chief Secretary to the Treasury, broke with political convention at the weekend by warning that the UK was now at risk of a 1930s-style crash.

As well as attempting to reassure the markets on the Government's wider economic competence, Mr Brown will try to outflank those critics who claim he wants to micro- manage every Whitehall department and public service. He will call for an extension of the private finance initiative to cover areas such as inner-city regeneration, social housing, renovation of more schools and training for the unemployed.

Mr Brown will also urge the Office of Fair Trading to use its new powers in the Competition Act to stop the public sector from stifling competition. One area in which this may apply, according to government sources, is in the excessive regulation that the Department of Health applies to pharmacies.

The Chancellor has been stung by accusations from Blairites in recent months that his opposition to top-up fees and greater freedoms for foundation hospitals revealed his traditional Labour instincts.

But he will tell his audience that markets can indeed be used for the public good and that improving and extending the PFI regime is the best means of doing so.

"The challenge we face is – while remaining true to our values and goals – to have the courage to affirm that markets are a means of advancing the public interest, to strengthen markets when they work and to tackle market failure to ensure markets work better," he will say. "There should be no principled objection against PFI expanding into new areas such as the provision of employment and training services, renovation of schools and colleges and major programmes of urban regeneration and social housing."

Mr Brown will say he looks forward to tough pro-competition action by the Office of Fair Trading in its inquiries into estate agents, private dentists and doorstep salesmen and will praise fresh competition in postal and water services.

Michael Howard, the shadow Chancellor, ridiculed Mr Brown's claims to economic competence yesterday.

"The Brown bear market represents investors' judgement on the performance of the Chancellor. The reality is that people are suffering badly as a result of Gordon Brown's mismanagement of the British economy," he said.

"People's pensions and savings have been hit. Britain's stock market has fallen further and faster than the Dow Jones index in the United States. Gordon Brown's pensions tax raid has wiped £80bn from the stock market."

But the Chancellor will say that recent volatility in global stock markets "demonstrated once again that no country can insulate itself from the ups and downs of the world economy. I understand the concerns that uncertainty causes for investors and consumers alike. Indeed, it is because we have always understood that monetary and fiscal regimes must work well in challenging times as well as good times."