Local government and the credit crunch

I don't often comment on "political" issues, but this week's pre-budget report has left me feeling a bit bemused. I'm a pretty simple person when it comes to finance, so I find the current policy very hard to follow. Most commentators are agreed on the fact that the current economic crisis has been caused by the fact that people have borrowed too much and there is too much debt. So can someone please explain to me why borrowing even more by the government is going to sort the crisis out. I can't see that the temporary cut in VAT is going to kick start the economy, particularly given that people know it is only temporary and taxes will go up just in time for the general election. I agree that the economy needs a kick start, but helping small business to keep people in work and therefore money in their pockets would seem to be a more productive way of doing things.
Last week I was in London at a "Credit Crunch Summit" organised by the Local Government Association. There were a number of ideas floated as to what local government could do, particularly around housing advice for those in difficulty with mortgage repayments, but the main tranche of advice seemed to be to spend more money on infrastructure projects - and cut taxes at the same time. No one explained how we could do both at once, but as I said, I am a very simple person, so I'm obviously missing the obvious!