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Meeting the fiscal rules?

Meeting the fiscal rules?. Christine Frayne. Gordon Brown’s fiscal rules. Golden rule only borrow to invest receipts must cover current spending implies surplus or balance on current budget judged over the economic cycle, not year by year Sustainable investment rule. A seven year cycle?.

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Meeting the fiscal rules?

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  1. Meeting the fiscal rules? Christine Frayne

  2. Gordon Brown’s fiscal rules • Golden rule • only borrow to invest • receipts must cover current spending • implies surplus or balance on current budget • judged over the economic cycle, not year by year • Sustainable investment rule

  3. A seven year cycle? PBR04: 1999/00 – 2005/06 Source: HM Treasury

  4. A twelve year cycle? PBR04: 1999/00 – 2005/06 PBR05: 1997/98 – 2008/09 Source: HM Treasury

  5. Current budget balance Source: HM Treasury

  6. Meeting the golden rule? “We would meet the Golden Rule irrespective.” Gordon Brown, Evidence to Treasury Select Committee,19th July 2005 Source: www.publications.parliament.uk/pa/cm200506/cmselect/cmtreasy/399/5071902.htm

  7. Meeting the golden rule? Previous estimated cycle

  8. Meeting the golden rule? Source: HM Treasury

  9. Meeting the golden rule?Estimated cyclically adjusted current budget surplus Source: HM Treasury

  10. Gordon Brown’s fiscal rules • Golden rule • Sustainable investment rule • keep debt at a “stable and prudent” level • defined as below 40% of national income • to be met every year in current economic cycle

  11. 40% ceiling Public sector net debt Source: HM Treasury

  12. Conclusion • Treasury expects Golden Rule to be met • Over current cycle due to re-dating of economic cycle • Medium term outlook potentially improved by • £3bn discretionary tax increase • Possible tight control over public spending over CSR 2007, saving £8bn in today’s money • Risks • Is there as much spare capacity in the economy as the Chancellor hopes? • Will receipts materialise? • Will spending be reduced?

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