Gordon Brown has clashed with David Cameron on the economy in an angry Commons encounter.

At prime minister's questions in the Commons on Wednesday, the Conservative leader accused the government of putting up taxes at a time of uncertainty in the financial markets and rises in the cost of living for families.

However Brown insisted that income tax would be cut next month and that Britain was better prepared for the global downturn than international competitors.

Cameron noted it was "now nearly eight months since the start of the "credit crunch".

"One of the key questions is how well prepared we are," he added, arguing that the "UK has been shown to have some serious failings".

But Brown hit back that Cameron should "look around the world".

Compared to the collapse of Bear Stearns in the US and Societie Generale in France "we have been better protected against the global financial turbulence" he said.

However Cameron contrasted the quick rescue of Bear Stearns with "Northern Rock where there was months of dithering" by the government.

FSA

He pointed to the Financial Services Authority's (FSA) report into its handling of Northern Rock which admitted it was "short of expertise in some fundamental areas".

"So that we're better prepared in future... the Bank of England, not the Financial Services Authority, should be in charge of rescuing banks that fail," the Tory leader said.

The prime minister replied that: "It's true that the FSA have been regulating for solvency and done a good job. The problem arose in terms of liquidity and that's where further efforts have got to be made.

"But that is true... for the American financial system, the French and the German systems as well.

"All countries are realising that you've got to do more to protect against illiquidity. And they also know there has got to be greater transparency in the financial system.

"So the lessons that are being learnt are being learned around the world."

Regulation

Cameron expressed incredulity at his response on the FSA, saying the report had found that "in terms of financial regulation the UK has been shown to have some serious failings".

"That is why the Bank of England should be in charge of these rescues, not the Financial Services Authority," he told MPs, urging Brown to "make one more U-turn".

But Brown again defended the work of the FSA and the tripartite regulatory system he designed as chancellor.

"The FSA have admitted that they must do more about liquidity problems," he said.

"Every financial organisation around the world, that is regulating markets, is accepting the need to do more.

"The real problem is off balance sheet activities, write-offs that have not been properly declared, credit rating agencies that have done the job of being advisers as well as raters. These are the problems that have to be addressed."

Taxes

Cameron countered that: "It is time the prime minister and the chancellor realised that the real problem facing Britain is their economic mismanagement."

He highlighted Britain's bulging budget deficit, which is higher as a share of national income than most competitors.

"That is why he is putting up taxes," he added, when "most other countries are helping families with the cost of living".

He challenged the prime minister to "name one other major economy that responded to the downturn by putting up taxes".

But Brown insisted that: "We are injecting more money into the economy this year. We aren't taking money out of the economy."

He said the government was cutting the basic rate of income tax from 22 to 20 pence next month and had already cut corporation tax for firms.

The prime minister claimed that inflation is lower than in other developed economies while a Conservative dossier published this week found that "far from Britain doing badly, real living standards in Britain among pensioners had risen by £1,500 since 2001".

He also quoted the Conservative leader accepting that interest rates are "historically low" and Tory adviser Frederick Forsyth saying that Cameron has "got no basic grasp of arithmetic".

However Cameron said this month's Budget was tax raising, while the cost of basic goods such as fuel and food had risen dramatically in the past year.

Homes

The Liberal Democrat leader later asked about insecurity in the property market.

Nick Clegg said: "Home repossession orders now stand at 100,000 - the same as in 1990 and house prices are now falling faster than they were then.

"Does the prime minister still deny that the crisis facing British homeowners today is at least as bad as the Tory recession of the 1990s?"

Brown responded by pointing out that interest rates and home repossessions are far lower than they were in the early 1990s and that the current situation is therefore "quite different" because the Labour government "didn't listen to the Liberal party but pursues policies for economic stability".

Clegg said that "complacency was the only thing" Brown had to offer as thousands of British families faced losing their homes.

The Lib Dem leader called on the prime minister instruct the Bank of England to take house prices into account when setting interest rates and stop banks repossessing homes "at will".

Brown said that he would deal with economic problems by continuing to keep interest rates and inflation low.