Brown deflects tax rises by tweaking golden rule

Gordon Brown has offset the chances of imminent tax rises and drastic spending cuts by declaring a change in the way he calculates his cherished golden rule.

The Chancellor said his self-imposed fiscal policy, which dictates borrowing only for investment, needing amending to state that the economic cycle it runs along started in 1997, and not 1999 as previously thought.

The move effectively hands Mr Brown just over £10bn of extra surplus from updating the boundaries of fiscal policy, and ensures a pledge that public spending will remain untouched until 2008.

Economists believe the refreshed view also indicates that predictions of large tax rises are no longer valid for the 2006 Budget, which was previously a consensus among City analysts.

In line with the new view of the economic cycle, the Treasury unveiled a paper showing that a revised assessment confirms the economic cycle had indeed begun in 1997, two years earlier than initial calculations.

According to the Chancellor, the revision to the cycle, which effectively spares Mr Brown from the embarrassment of breaking his golden rule, needed updating to account for revisions to the recent path of economic growth.

Amid suggestions of economic slowdown, Mr Brown told the Treasury committee he would task the National Audit Office to test “whether our judgment is reasonable and cautious.”

Yet in race to beat the NAO from issuing a response, the CBI and George Osborne, the shadow chancellor, collectively condemned the amendment, with the minister accusing Mr Brown of “fiddling the figures.”

“There was a danger Gordon Brown was going to miss his golden rule this year; that’s because he’s spending too much – and so he’s cheated,” said Mr Osborne.

“It is like giving someone a straitjacket,” he added, alluding to the golden rule, “and then also giving them the key to release that straitjacket.”

Ian McCafferty, the CBI’s chief economist, said the Treasury’s announcement that “the fiscal goalposts” have been shifted reflects the mounting problems with the Government’s finances.

“The announcement only serves to highlight the sharp contrast between monetary policy, which is well-understood and appears genuinely free of political involvement, and fiscal policy, where the Treasury is able to act as both judge and jury.

“Furthermore, revisions to the recent past will do nothing to improve the chances of meeting the rule in the next cycle.”

The CBI’s view has found support from other economists, who believe that while Budget 2006 appears immune to tax rises, a future hike appears inevitable for the good of the economy.

Political commentators meanwhile said the tweak to the golden rule was more about Mr Brown’s ambition for the premiership, and how the prudent Chancellor, hailed as Tony Blair’s successor, simply couldn’t afford to blunder his oft-trumpeted fiscal policy.



 

21st July 2005

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