Chancellor on course to break 40% fiscal rule

Gordon Brown and Alistair Darling are expected to change the fiscal rules in the autumn to enable borrowing beyond the maximum 40% of gross domestic product (GDP) permitted under the existing rules.

Darling is likely to defend the change on the grounds that a new economic cycle began in March. The move indicates he and Brown have decided they can avoid putting up taxes or eating into three-year spending deals already agreed with government departments, The Times reports.

The restructured rules, which are likely to be announced in the PreBudget statement, are expected to permit higher borrowing as the economy worsens and Treasury officials are braced for figures showing their tax revenues have fallen sharply because of the economic downturn.

The Government's breaking of the rule which limits net public sector debt to 40% of national income, will come under a new, looser framework, maiking it easier to borrow more in the downturn. But the main reason for the change is to restore confidence in the rules, resulting in a possibly tighter the medium-term budgetary position than planned.

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