Andrew Smith, Chief Economist at KPMG in the UK has joined a growing chorus criticising chancellor Alistair Darling for failing to add the Northern Rock’s liabilities to the net debt figure.
‘Next week’s budget will almost certainly see the fiscal rules being bent, if not outright broken and, or, rewritten,’ Smith said. But including the Northern Rock liabilities in the public finances’ balance sheet would blow the government’s ‘sustainable investment’ rule which limits the debt to GDP ratio to 40%.
‘But this may not count as an out and out rule “break”, he said. ‘It is most likely to be treated as a one-off breach, with figures presented both including and excluding the “temporary public ownership” of the stricken mortgage bank.’
Smith said forecasters, including the Monetary Policy Committee, now expected a deeper and longer slowdown than HM Treasury anticipated in its pre-budget report. Adopting a weaker forecast, suggested government finances would not achieve the PBR prediction of returning to balance by 2009-10 without tax increases or spending cuts.
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