Treasury rules, OK?

7 Mar 08
MIKE THATCHER | Gordon Brown’s cherished sustainable investment rule is clinging to life, Rasputin-style, despite repeated attempts to kill it off. The rule, requiring that public sector net debt be kept below 40% of national income, has been under threat for some time. With the expected addition of £100bn of Northern Rock liabilities and £30bn from Private Finance Initiative projects there seemed little hope. And yet, the humiliating U-turn predicted for next week’s Budget no longer seems likely. Chancellor Alistair Darling has received some unexpectedly good news and the prognosis for the rule is much improved. Strictly speaking, Northern Rock will push the debt figure beyond 40%. But experts have argued that the temporary nature of the transfer means the rule should be applied without these liabilities. The Treasury will no doubt concur. Similarly, Whitehall’s move to International Financial Reporting Standards, and the consequent inclusion of PFI debts, would have brought the government perilously close to its self-imposed limits. However, the Financial Reporting Advisory Board this week confirmed that it is recommending a 12-month delay in implementation. So the rule could have a stay of execution of at least a year. Darling has two choices: keep his head down and hope to get reshuffled before the next Budget; or address some of the immediate concerns about the sustainable investment rule and its big brother, the golden rule of only borrowing to invest. As participants in the Public Finance/Deloitte round table pointed out (A Budget for hard times), scrutiny of the Budget is limited and there is little in the way of openness and consultation when it comes to the fiscal rules. Darling should use his speech to introduce some transparency into the process. He could make the rules subject to the scrutiny of the National Audit Office or the Bank of England, which would test Treasury forecasts and decide when the economic cycle began and ended. At the same time, the chancellor could promise a more consultative approach to major tax changes, thus avoiding the need to backtrack at a later date.

Gordon Brown’s cherished sustainable investment rule is clinging to life, Rasputin-style, despite repeated attempts to kill it off.

The rule, requiring that public sector net debt be kept below 40% of national income, has been under threat for some time. With the expected addition of £100bn of Northern Rock liabilities and £30bn from Private Finance Initiative projects there seemed little hope.

And yet, the humiliating U-turn predicted for next week’s Budget no longer seems likely. Chancellor Alistair Darling has received some unexpectedly good news and the prognosis for the rule is much improved.

Strictly speaking, Northern Rock will push the debt figure beyond 40%. But experts have argued that the temporary nature of the transfer means the rule should be applied without these liabilities. The Treasury will no doubt concur.

Similarly, Whitehall’s move to International Financial Reporting Standards, and the consequent inclusion of PFI debts, would have brought the government perilously close to its self-imposed limits. However, the Financial Reporting Advisory Board this week confirmed that it is recommending a 12-month delay in implementation.

So the rule could have a stay of execution of at least a year. Darling has two choices: keep his head down and hope to get reshuffled before the next Budget; or address some of the immediate concerns about the sustainable investment rule and its big brother, the golden rule of only borrowing to invest.

As participants in the Public Finance/Deloitte round table pointed out (A Budget for hard times), scrutiny of the Budget is limited and there is little in the way of openness and consultation when it comes to the fiscal rules.

Darling should use his speech to introduce some transparency into the process. He could make the rules subject to the scrutiny of the National Audit Office or the Bank of England, which would test Treasury forecasts and decide when the economic cycle began and ended.

At the same time, the chancellor could promise a more consultative approach to major tax changes, thus avoiding the need to backtrack at a later date.

Stranger things have happened, but we won’t be putting our non sub-prime mortgage on it.

Did you enjoy this article?

AddToAny

Top