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Treasury may relax fiscal rules Treasury may relax fiscal rules
(about 1 hour 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.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.
The new framework, which could be announced in the Autumn pre-Budget statement, would permit more borrowing as an alternative to increasing taxes. The new framework, which could be announced in the autumn pre-Budget statement, would permit more borrowing as an alternative to increasing taxes.
The Tories say such a move would be a final nail in the coffin of Gordon Brown's reputation for prudence.The Tories say such a move would be a final nail in the coffin of Gordon Brown's reputation for prudence.
But the Treasury stressed no decision had yet been taken.But the Treasury stressed no decision had yet been taken.
BBC political editor Nick Robinson said officials were 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.
The rules were laid down by Mr Brown as Chancellor after Labour came to power in 1997. Tax shortfall
He repeatedly staked that reputation on his fiscal rules and now we're told that the Treasury is having to re-write the rules Conservative Party spokesman class="" href="http://newsforums.bbc.co.uk/nol/thread.jspa?forumID=5125&edition=1">Send us your comments 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.
It is predicted these will be breached as the government faces an £8bn tax revenue shortfall because of the current economic climate. 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 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 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.
The Treasury said the news was "pure speculation, based on comments that are over three months old".The Treasury said the news was "pure speculation, based on comments that are over three months old".
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."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."
'Stark choice' End of era
The BBC's political editor said Gordon Brown, first as chancellor and then prime minister, had promoted his fiscal rules as evidence of the prudent way in which he was running the economy. Shadow chancellor George Osborne said: "It's basically the end of the Brown era of economics."
But the behind the scenes re-drafting of the rule limiting the amount of government borrowing comes as tax revenues are shrinking because of the slowdown on the High Street, the stalling of the housing market and the drop in company profits. "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 More from Today programmeFROM THE TODAY PROGRAMME More from Today programme
Our correspondent said: "Do nothing and the government would be faced with a stark choice - tax us more to make up the shortfall or borrow more and break their fiscal rules." "And the first major test, the first economic downturn that the world has faced, he has to abandon them."
He added it was "politically significant as well because it would be hugely difficult for any chancellor at a time like this when the government's ratings are so low, to add to people's economic problems by charging them even more". 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".
Robert Chote, director of the Institute for Fiscal Studies, told BBC Radio 4's Today programme: "The government would perhaps have been better off rethinking how these rules should look rather before the point at which it looks as though you are just about to break them. 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.
"That doesn't do credibility any good in its own right." 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".
Responding to the reports, a Conservative Party spokesman said: "If this is true, it puts the final nail in the coffin of Gordon Brown's reputation for economic competence.
"He repeatedly staked that reputation on his fiscal rules and now we're told that the Treasury is having to re-write the rules because the government has lost control of the public finances."
Liberal Democrats Treasury spokesman Vince Cable said the government would in effect be acknowledging that it could not keep its own rules on public debt.
He said the success of the Bank of England's control of monetary policy held lessons for the Treasury and it was time to establish an independent body to scrutinise fiscal policy.
"This step underlines what I and my colleagues have said for years, the assessment of fiscal policy must be made by an independent body in the same way interest rates are determined," he said.