27 April 2007
Chancellor Gordon Brown's much-criticised decision to re-date the economic cycle means that he is likely to meet his 'golden rule', according to official figures published this week.
But Gemma Tatlow, an economist at the independent Institute for Fiscal Studies, warned that the change 'may have undermined the credibility of the fiscal framework'.
According to figures published by the Office for National Statistics on April 24, the public sector budget for 2006/07 showed a deficit of £8.8bn compared with Brown's Budget projection of £9.5bn.
The ONS figures will be warmly welcomed by the Treasury, as Brown's receipts for 2006/07 and net investment figures have also surpassed his recent Budget estimations.
The figures show that his 'golden rule' – borrowing only to invest over the course of the economic cycle – has been met with almost £10bn to spare over the ten-year cycle that the Treasury estimates to have run from 1997/98 to 2006/07.
'This suggests that we can be fairly confident that the rule will stay met unless new national accounts data force the Treasury to re-date the economic cycle,' Tatlow said.
'[But] the rule has been met in part because of the chancellor's debatable decision to move the start date of the economic cycle two years earlier. Had this not been done, the rule would have been broken by £3.5bn over the eight-year cycle that would have begun in 1999/2000,' she added.
Brown would have suffered extreme political embarrassment if his golden rule had been breached, but the IFS generally reserved praise for his ability to balance the government's day-to-day spending with income.
Tatlow did, however, question whether the Treasury could continue to keep certain costs, such as private finance projects, off the public books.
'The beginning of a new economic cycle, and the likely arrival of a new chancellor at Number 11, would seem a sensible time to tweak the fiscal framework… to try to restore credibility,' she said.
The IFS's intervention is the latest in a campaign to clarify, or make independent, fiscal decision-making.
Meanwhile, Brown's Budget forecasting also came under question from MPs this week. A report by the Commons' Treasury select committee, published on April 24, says his overall figures were 'optimistic'.
But more importantly the MPs, chaired by John McFall, singled out a 'very significant downward revision of forecast North Sea oil revenues' compared with Brown's Pre-Budget Report.
'Only time will tell if the Treasury has finally got its forecasts right,' McFall warned.
PFapr2007
