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Treasury may relax fiscal rules 'No decision' on borrowing rules
(about 2 hours later)
The government is considering re-writing its own rules on how much it can borrow in order to counter the effects of the economic slowdown. Chancellor Alistair Darling says he has made no decision on relaxing government rules on borrowing, but said they are constantly kept under review.
The new framework, which could be announced in the autumn pre-Budget statement, would permit more borrowing as an alternative to increasing taxes. He said the world's economy was going through its "greatest shock" for 60 years. The government had to help but rules remained "critically important".
The Tories say such a move would be a final nail in the coffin of Gordon Brown's reputation for prudence. The Treasury is considering changing the rule that public sector debt should not exceed 40% of national income.
But the Treasury stressed no decision had yet been taken. The Tories say it would be the end of Gordon Brown's reputation for prudence.
The BBC understands that officials are drafting a looser framework so that the Treasury would not have to break the present borrowing limit of 40% of national income.The BBC understands that officials are drafting a looser framework so that the Treasury would not have to break the present borrowing limit of 40% of national income.
Tax shortfallTax shortfall
The rules were laid down by Mr Brown as chancellor after Labour came to power in 1997 - he promoted them as evidence of the prudent way he was running the economy.The rules were laid down by Mr Brown as chancellor after Labour came to power in 1997 - he promoted them as evidence of the prudent way he was running the economy.
But it is predicted these will be breached as the government faces an £8bn tax revenue shortfall, because of the slowdown on the High Street, the housing market stalling and a drop in company profits.But it is predicted these will be breached as the government faces an £8bn tax revenue shortfall, because of the slowdown on the High Street, the housing market stalling and a drop in company profits.
And the first major test, the first economic downturn that the world has faced, he has to abandon them George OsborneShadow chancellor Robert Peston analysisSend us your commentsAnd the first major test, the first economic downturn that the world has faced, he has to abandon them George OsborneShadow chancellor Robert Peston analysisSend us your comments
BBC political editor Nick Robinson said the government faced the choice of increasing taxes to make up the shortfall, drastically cutting public spending or borrowing more to make up the shortfall.BBC political editor Nick Robinson said the government faced the choice of increasing taxes to make up the shortfall, drastically cutting public spending or borrowing more to make up the shortfall.
The Treasury said the news was "pure speculation, based on comments that are over three months old". But speaking to BBC Radio 4's World at One programme, Mr Darling said: "I've made no decision. I said 12 months ago in I think the very first interview I gave as chancellor to the Financial Times that we always keep these things under review.
A spokesperson said: "We have made consistently clear [for some time now] that we will set out the fiscal rules for the next economic cycle at the end of the current cycle." "So there's nothing new there. I'll report at the pre-Budget report to the House of Commons this autumn on where I believe we are. But I believe that rules are important."
End of era 'Two shocks'
Later a Downing Street spokesman said "no decision" had been taken on revising the rules and any decision would be taken, as usual, at the time of the pre Budget report, or the Budget. He said debt levels were lower than Germany, France, Japan and the US and had been "substantially" reduced since 1997.
He said that public debt levels in Britain were better than most other comparable economies. "We go into what is a difficult position from a much much stronger position than we had in the past," he said.
But shadow chancellor George Osborne said: "It's basically the end of the Brown era of economics." He said it was right, while the world's economy was being hit by "two shocks" - the credit crunch and high oil prices - that borrowing is allowed to support the economy.
FROM THE TODAY PROGRAMME Q&A: Fiscal rulesPublic borrowing at June record
"But what is crucial is that you do have rules to ensure that public finances are sustainable in the medium term. That is why rules are so important now and will remain important in the future," he said.
Speaking earlier shadow chancellor George Osborne said: "It's basically the end of the Brown era of economics."
"He put his credibility on these fiscal rules, they were part of an arrangement he announced more than a decade ago when he was doing my job as shadow chancellor that fiscal policy would be tight, would be managed by these fiscal rules."He put his credibility on these fiscal rules, they were part of an arrangement he announced more than a decade ago when he was doing my job as shadow chancellor that fiscal policy would be tight, would be managed by these fiscal rules.
FROM THE TODAY PROGRAMME Public borrowing at June record
"And the first major test, the first economic downturn that the world has faced, he has to abandon them.""And the first major test, the first economic downturn that the world has faced, he has to abandon them."
'Huge mess'
He said that if the Tories won the next election, they would inherit a "very difficult fiscal position" and he expected the government to "bequeath the next Conservative government a huge financial mess".He said that if the Tories won the next election, they would inherit a "very difficult fiscal position" and he expected the government to "bequeath the next Conservative government a huge financial mess".
Liberal Democrat Treasury spokesman Vince Cable said it was unsurprising that the government was considering relaxing the rule as "we all knew they were coming up to the 40% GDP debt rule" and said it was "embarrassing, even humiliating" for the government.Liberal Democrat Treasury spokesman Vince Cable said it was unsurprising that the government was considering relaxing the rule as "we all knew they were coming up to the 40% GDP debt rule" and said it was "embarrassing, even humiliating" for the government.
Later in the House of Lords, the Conservative former Scottish Secretary Lord Forsyth asked why, in a debate on the Finance Bill, Treasury spokesman Lord Davies had not referred to the claims once in his 20-minute speech. In the House of Lords, the Conservative former Scottish Secretary Lord Forsyth asked why, in a debate on the Finance Bill, Treasury spokesman Lord Davies had not referred to the claims once in his 20-minute speech.
He said as chancellor Mr Brown had always talked about not returning to boom and bust, adding: "Well, we have had the boom and today we have had confirmation of the bust."He said as chancellor Mr Brown had always talked about not returning to boom and bust, adding: "Well, we have had the boom and today we have had confirmation of the bust."
Robert Chote, director of the Institute for Fiscal Studies, said the government should have rethought the rules "before the point at which it looks as though you are just about to break them".Robert Chote, director of the Institute for Fiscal Studies, said the government should have rethought the rules "before the point at which it looks as though you are just about to break them".