FactCheck: has Gordon Brown met his golden rule?
Updated on 07 January 2008
Has the government balanced its books over the length of the last economic cycle?
"The golden rule is something that is over the economic cycle," Brown said. "We've just finished one economic cycle where we've met the golden rule - that will be assessed in the budget of course - we're starting a new economic cycle."
Andrew Marr show, BBC television, Jan 6 2008
The background
Stewardship of the economy was central to Gordon Brown's pitch to the nation. So it's no surprise that we've covered this before. But this is a different spin on a familiar topic - the flexibility of the "golden rule".
When Labour came to power in 1997, they set themselves a set of targets for their management of the economy - partly to reassure the markets that they wouldn't spend wantonly and let inflation run wild.
The "golden rule" is the most often quoted of these. It specifies that the government should balance the books over the length of an economic cycle.
Gold is of course a famously weak and malleable metal, so it's no surprise that there's a lot of wiggle room in the golden rule.
The analysis
Public borrowing has been rising over the last few years, as economic growth falls below forecast levels. So that wiggle room has been much in need over recent years.
The government has predicted that it will have to borrow £38bn this financial year (April to April). But it has already borrowed £36.2bn, and there are still four months to go. Either there will have to be a serious round of belt-tightening, or that borrowing forecast is going to be overshot by quite some distance.
Questioned on this by Andrew Marr, Brown's strategy was to evade the question by referring back to the old fiscal rules. He says they've stuck to the golden rule. So therefore the public finances must be under control.
But the golden rule only says that borrowing has to be balanced over an economic cycle. The trouble is that there's no strict definition of what a cycle is.
In fact, the treasury has moved the length of the current economic cycle several times over the past few years, which has conveniently had the effect of helping the government meet the golden rule.
In 2005, for example, it looked like the government would miss the target. By coincidence, at that time, it added two extra years on at the start of the cycle, moving the beginning from 1999 to 1997. The government happened to run a surplus in those two years. So hey presto, the books were balanced again.
"There were good economic reasons for making those changes," says Carl Emmerson of the independent Institute for Fiscal Studies think tank. "But those rules were equally valid in 2001, 2002, 2003 and 2004, and the treasury didn't make the changes then."
More recently, though, the government has moved the end of the cycle. In early 2006, they were expecting it to end in 2009. But Gordon Brown confirmed to Andrew Marr that the treasury now believes that the long cycle which began in 1997 finished in 2006. We're now in a brand new cycle.
Of course, no-one now knows when the economic cycle is due to end. The government will be running a deficit over the next few years, so if it turns out to be a short cycle, it could end up breaking the golden rule quite comprehensively.
On the other hand, if it turns out to be a long cycle, Brown could borrow with little restraint for the next few years, knowing that when the next election arrives he can still say he's on course to meet the golden rule.
Brown says he's obeying a strict set of rules - but in fact he still has considerable scope to borrow money.
The verdict
The rules are all pretty arbitrary. Missing them by a short margin doesn't automatically mean that the UK will be tipped into recession.
But Gordon Brown puts great weight behind them, so they acquire considerable importance - especially as his reputation for economic competence is so important to his political authority.
Ultimately, the aim of these policies is to keep debt down - but the fact is that debt is rising fast. A change in the way PFI projects are accounted for will soon add extra billions of to the government's books. And if, as expected, the government nationalises Northern Rock, another hefty tranche of debt will hit the government's balance sheet.
Brown may be meeting his own increasingly vague fiscal rules. But that doesn't tell you much about rising debt - which is arguably much more significant.
FactCheck rating: 3
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The sources
Brown says UK to meet fiscal rules over cycle, Reuters News Agency Website, 6 Jan 2008
IFS Green Budget, Jan 2007, Chapter 3: The fiscal rules and the policy framework
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