PAUL WILENIUS:                Britain's resilient shoppers 
are fighting on a new type of front line. And up to now they've been winning. 
By hunting down pre-Christmas bargains, they've been helping the economy. 
But the noise of battles in a distant lands is starting to echo through 
the nation's High Streets and Malls. And the fear is, it might keep the 
consumers away.
This month in his pre-Budget Report Gordon Brown will give his first detailed 
assessment of the impact of September the eleventh, on the British economy, 
and also his public spending and tax plans. But the signs aren't good, 
as there is growing evidence that the shock-waves from the terrorist attacks 
is beginning to be felt in the UK.
                         The steep downturn in 
the American economy and in Europe, looks certain to affect Britain, already 
anxious about the impact of the war. Although the US economy was slowing 
before the attacks, now consumer spending is dropping fast, manufacturing 
is falling sharply, and almost half-a-million Americans lost their jobs 
in October.

DIGBY JONES:                If you are in manufacturing 
exporting, if you are looking across the Atlantic to your market, then 
it is very difficult indeed, in fact a lot of business is saying they have 
a big problem there.  And then in specific sectors, such as airlines, such 
as in aeronautical sector, they are having very, very specific problems 
indeed. Now all of that's coming through in our survey which is that it 
is very, very difficult, but it is not across the piste completely disastrous 
everywhere.

WILENIUS:                    Britain's economy has 
already taken a heavy knock, according to a CBI industry survey which will 
be released later today. The British Airways gleaming flagship, Concorde, 
will return to service this week. But the future of British businesses 
like manufacturing is less certain. Even the normally resilient service 
sector including advertising, PR, tourism, and banking is suffering. And 
house prices are slipping.

DOUGLAS McWILLIAMS:            In the UK the initial effects 
were relatively little, we had strong retail data for September and it's 
only now that we're starting to see confidence declining and we're starting 
to see some evidence that businesses are stopping spending, but up until 
now the net impact on the UK, okay the situation wasn't all that great, 
but the net impact on the UK has been fairly minor. I think in the next 
six to nine months' we're going to see it intensify.

WILENIUS:                    The airlines hit hardest 
by September the eleventh, are those which rely heavily on business customers, 
like British Airways. But the cut-price operators are still finding lots 
of passengers looking for cheap flights and have so far suffered less. 
Many companies dependent on consumer confidence, are still holding their 
own. Sales have held up and for some profits are healthy. But there are 
growing fears there could be difficult times ahead.

JONES:                    God bless 'em, the consumers 
of Britain are still out there, in a way saving the economy right now, 
and, and that is one of the most important factors as we move into the 
Christmas season. I think this is probably the most important Christmas 
in that respect for many, many years.

McWILLIAMS:                Consumer confidence has been 
very buoyant but it started to fray a bit at the edges, the latest data 
shows it's starting to drop now and it's likely to drop further.

WILENIUS:                    What does this all mean 
for the Treasury's public finance plans? Even before the war on terrorism, 
there were fears that if public spending kept on increasing at the same 
rate beyond the year two-thousand-and-three, then Gordon Brown might have 
to put up taxes anyway.  But now with growing demands for more money for 
defence and home security, this will put him under even greater pressure.

ANDREW DILNOT:                If we were to move in the 
future away from a world where defence spending was falling as a share 
of national income, to a world where it wasn't only stable, but rising, 
then that would be a new call on resources that otherwise might have gone 
to health, education, transport, and I think that makes what was already 
a very difficult set of choices for the government, beyond two-thousand-and-three, 
potentially more difficult still.

WILENIUS:                    The heightened security 
around airports like Heathrow has added to the mounting cost of protecting 
Britain's citizens from terrorists. But the extra bill for immigration, 
the security services, and emergency planning, on top of the cost of fighting 
the war, is growing fast. So are the demands for more cash from the Treasury.

BRUCE GEORGE MP:            Either money will have to be transferred 
from existing budgets or an addition, some additional monies will have 
to be found because the first obligation of any government is to defend 
itself. And although there are many other enormous demands on an inadequate 
budget to provide safety and security is in my view the highest demand 
on on spending.

JOHN McFALL MP:                I've no doubt that there 
will be upward pressure on public spending both in the defence field and 
in the Home Office field in the defence for the support of the forces in 
this terrorism which as Geoff Hoon, the Prime Minister and others have 
said, could go on for a very long time.

WILENIUS:                    For airlines like governments, 
tight control of business and finances is vital. Voters have been promised 
big increases in spending on health and education. But with new bills coming 
in for defence, foot and mouth, security and Railtrack, Gordon Brown has 
less money than he hoped for. Yet continuing with these large public spending 
rises, even after two-thousand-and-three, is important for many in his 
party.

FRANK DOBSON MP:            It will certainly be necessary 
to continue to spend an increasing amount on health and on education if 
we're producing from the medical schools far more doctors than we've produced 
in the past and that will be the case by then, then their, their wages 
will have to be paid. So there will have to be increases in spending.

McFALL:                    I think it's sacrosanct 
that we maintain the commitments that we've given to spend on public services 
so I don't think there is any resigning from that.  Whether the Chancellor 
can do that over the economic cycle from the resources he has at the moment, 
or whether he has to think on tax increases is another matter.  That won't 
face us until two-thousand-and-three but I am very firm on the belief that 
we have to maintain our level of spending.

DILNOT:                    I think by the end of this 
three-year period, the government will have just about got to the level 
where borrowing is as high as they can tolerate.  So if they want to see 
spending on health, on education, on transport and maybe now even defence, 
rising as a share of national income, then they're going to have to look 
to tax increases.

WILENIUS:                    To win over the support 
of voters like these at this Shopping Centre in Essex, Gordon Brown made 
a firm promise not to put up the basic income tax rate. Although his room 
for manouevre on stealth and business taxes is limited, he hasn't ruled 
out dropping new changes to National Insurance, tax allowances or even 
other less visible taxes, on an unsuspecting public or business. 

McWILLIAMS:                He's going to have to raise 
taxes and it seems to me that the way the numbers are going there's going 
to be a lot of pressure for him to raise taxes, maybe even before two-thousand-and-three 
but certainly definitely after two-thousand-and-three.

JONES:                    It is important of course 
that if he comes back for taxes he doesn't come to business for them, because 
in the last four years he's taken twenty-two-billion pounds more out of 
business than in the four previous years.  And business needs all the help 
it can get right now and to come back for more taxes just would not be 
in any way helpful to enhancing both productivity and the efficiency of 
business.

WILENIUS:                    For any government,  
there's never a good time to put up taxes. But in the midst of war, it 
could be easier to persuade the British public to swallow this bitter pill.

DILNOT:                    We do tend to see tax increases 
during time of conflict, and there's I think little doubt that when there 
is some kind of conflict going on, the community as a whole tends to feel 
happier about paying more.  So it's possible that we might see this as 
an opportunity to raise some tax that might come in useful in the future.

McFALL:                    Well a number of seasoned 
commentators have indicated that any government that finds itself in the 
middle of a war, doesn't usually have a big hurdle to overcome to emphasise 
to the electorate that this has to be paid for, so I suppose there is a 
case at the moment for saying that we can come out with such a statement.

WILENIUS:                    This week Concorde, much 
loved by top bosses,  will finally take to the skies again. But the fear 
is with business facing a downturn, now could be the worst time to take 
money out of the economy by putting up taxes. And business leaders are 
already calling on the Bank of England to put more money in, to give the 
economy a boost.

JONES:                    It is important everything 
is done to keep that consumer spending, and in that respect we are calling 
on the monetary policy committee at the Bank of England to cut by a half 
a percent the interest rate next Thursday and it is important that they 
recognise the seriousness of the situation, that across every sector, across 
those exporting, across those who are supplying within the economy in Britain, 
into those who are supplying the high street, it is important that we keep 
the wind in the sails of the economy now - not looking at it in a couple 
of months time and thinking I wish we had.

WILENIUS:                    On Wednesday Tony Blair 
will fly on a special mission to Washington on Concorde to consult with 
President George Bush, on his difficult trip last week to the Middle East, 
and the war. Both men will also consider the worsening economic news starting 
to sweep across the West. Everyone will be waiting to see if that meeting 
can do anything to lift anxious spirits back home.