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.

Further reading:

Treasury all at sea on foreign profits

the Times story

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