Brown set to break 'golden rule' on borrowing, say economists
David Smith, Economics Editor
business.timesonline.co.uk
GORDON BROWN will break his “golden rule” on public borrowing this year, according to independent economists who say taxes should rise or government spending will be reined back.
The predictions follow official figures last week and a warning from Mervyn King, the Bank of England governor, who said recent budget deficits were “higher than is consistent with a sustainable position”.
The chancellor insists that the golden rule — only borrowing to fund public investment over the economic cycle — will be met. But the Ernst & Young Item club, which uses the Treasury’s model of the economy, said he was wrong.
Professor Peter Spencer, its economic adviser, said: “Borrowing is back up and it’s very clear to me that they’re going to break the golden rule this year.”
Spencer claimed that current borrowing — excluding capital — was heading for £23 billion this year, and Brown would miss the rule by £5 billion, with more borrowing next year.
Martin Weale, director of the National Institute of Economic and Social Research, said the golden rule had already been breached on the definition originally used by the Treasury.
“Even if you use the Treasury’s calculations — which I regard as incorrect — the position is very finely balanced,” he said. “It’s not enough for the chancellor to insist he is right. He has to say what he would do if he is wrong.”
Some economists expect borrowing to exceed Treasury projections by about £3 billion this year and £6 billion next.
The battle comes ahead of Brown’s comprehensive spending review on July 12, and ahead of this week’s meeting of the Bank of England’s monetary policy committee.
While the Bank is widely expected to leave the base rate unchanged at 4.5%, economists warn that there is a small chance it will rise after recent hawkish noises from King.
A survey of analysts by Ideaglobal.com shows a 30% probability of a hike.
Another survey, by BDO Stoy Hayward, suggests the Bank may wait until August, as business optimism and output have eased over the past month while inflation has stabilised. |
