(Updates with report of income tax increase in sixth paragraph)
By Adrian Croft
LONDON, Nov 23 (Reuters) - British Prime Minister Gordon Brown defended his plan on Sunday to inject billions of pounds of borrowed money into the economy to try to stave off a deep recession, saying failure to act could cause permanent damage.
Brown's finance minister Alistair Darling will on Monday unveil a package of tax cuts and extra public spending expected to total up to 20 billion pounds ($29.70 billion) in an attempt to keep Britons spending and stop the economy seizing up.
The cash injection will be paid for with borrowing, which could send Britain's budget deficit ballooning to around 120 billion pounds in the next financial year.
"We are taking action now to prevent permanent damage later," Brown said in an interview with the BBC, in which he said he was not planning to call an election in 2009. "Not to act is both irresponsible and uncaring," he said.
Darling is also expected to set out plans to repair the hole in the government's finances once the economy improves.
He will announce a proposal to introduce a new 45 percent income tax rate on high earners if Brown's Labour Party wins the next election, up from the current top rate of 40 percent, the BBC and Sky News reported.
The new tax would come in from 2011 and probably affect people earning more than 150,000 pounds a year, they said.
Brown must call an election by mid-2010.
Britain, buffeted by the global financial crisis, is on the verge of recession, with house prices slumping, unemployment rising and manufacturing output shrinking.
The centrepiece of the plan will be a temporary cut in sales tax paid on many goods, several newspapers reported on Sunday.
They said the tax, known as value added tax or VAT, could go down to 15 percent from 17.5 percent for one or two years, giving a pre-Christmas boost to consumers' spending power.
HELP FOR BUSINESSES
The Sunday Times said Darling would scrap plans to increase corporation tax for small companies and exempt foreign dividends from tax in an effort to allay tax concerns that have led several big companies to shift their tax domicile to Ireland.
A Treasury spokesman declined to comment on the reports.
Darling is also expected to announce tax cuts for low earners, help for home owners struggling to pay mortgages and plans to speed up infrastructure projects.
Opposition Conservative leader David Cameron accused the government of going on a borrowing binge that would have to be paid for with higher taxes later. "You cannot borrow your way out of a borrowing crisis," he told the BBC.
Brown's handling of the financial crisis has lifted his flagging popularity ratings, but his hopes of winning the next general election may depend on the recession being relatively short and shallow.
Labour lagged the Conservatives by 11 points in an opinion poll published on Sunday, a wider margin than in other surveys.
The government is leaning on the banks to step up loans to credit-starved small businesses. Royal Bank of Scotland pledged on Sunday not to raise overdraft fees for small firms or make demands for early repayment.
Darling is set to ditch the government's long-standing rules limiting borrowing and to slash growth forecasts. A Reuters poll forecasts the economy will shrink by 1.3 percent next year.
If Darling cannot persuade investors Britain will close the budget gap in future years, the pound, which has slumped against the euro and dollar in recent weeks, could slide further.
Germany, the Netherlands and Spain have already announced stimulus plans and a European Union package, worth up to 130 billion euros ($162.8 billion), will be unveiled on Wednesday.