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FactCheck: has Brown broken the rules?

By Channel 4 News

Updated on 15 May 2008

Has Gordon Brown overstepped the fiscal mark? FactCheck investigates.

The claim

"The sustainable investment rule is over the economic cycle, just like the golden rule."
Gordon Brown, Today, BBC Radio 4, 15 May 2008

The background

Two days after the government announced an emergency £2.7bn tax giveaway, the prime minister went on the media offensive.

The 10p tax compensation plan - and the increased government borrowing which is being used to pay for it - loomed large in Gordon Brown's breakfast TV and radio interviews.

On Radio Four this morning, he made a claim which appeared to tweak government borrowing policy or "fiddle the fiscal rules", as the Conservatives put it.

There are two big rules which the government has set itself for fiscal policy: the oft-quoted "golden rule", which states that the government should balance the books over the economic cycle, and the "sustainable investment rule", which says that government borrowing won't be allowed to get too high.

So what do they say, and did Brown's statement misrepresent them?

The analysis

Firstly, a quick look at the "golden rule". It states that, over the course of an economic cycle, the government will borrow only to invest.

This means paying for the likes of new infrastructure which will benefit taxpayers for years to come rather than fund current spending like public sector wages, or benefits.

This is a way of ensuring the government doesn't rack up a big debt to pay for ongoing costs. It doesn't have to be met each year; the government has the flexibility to increase or decrease short-term spending in times of boom or bust, so long as things add up over a longer period.

Just how long an economic cycle is, or precisely when it starts and finishes, is open to debate. Indeed, the government appeared to move the goalposts a couple of years ago, saying the previous economic cycle started in 1997 rather than 1999.

Either way, we're now said to be in a new economic cycle. The balance sheet doesn't have to add up every single year, so long as it ends up clean by the (as-yet-undefined) end of the cycle.

The sustainable investment rule, however, is slightly different. It's this which caused Brown to raise eyebrows this morning.

This rule controls how much the government can borrow in any year, regardless of what the money is being used for. The amount of debt needs to stay at a "stable and prudent" level over the economic cycle.

In reality, this means the national debt should not exceed 40 per cent of national income both over the economic cycle, and in any given year.

Or as it states on page 27 of this year's budget: "To meet the sustainable investment rule with confidence, net debt will be maintained below 40 per cent of GDP in each and every year of the current economic cycle."

So it's true that the sustainable investment rule does apply over the economic cycle, like the golden rule. But unlike the golden rule, it also applies every year.

Treasury predictions in March's budget put debt at 38.5 per cent of GDP for this year, rising to a rule-grazing 39.8 per cent in 2010-11.

But the extra £2.7bn borrowing announced this month would edge this up by a fraction of a percentage point. Nowhere near a rule-breaker for this year in isolation, but things could get pretty tight if this increased borrowing ends up being continued in future years.

The verdict

It's not so much that Gordon Brown didn't tell the truth this morning - but that he didn't necessarily tell the whole truth.

He did, however, make it clear four hours later, when questioned in his monthly press conference, that the sustainable investment rule applied both to the economic cycle, and for each year of the economic cycle.

How strictly he sticks to this rule - both in word and economic deed - in the future remains to be seen.

It may all sound a bit theoretical and, in a sense, it is. Breaking a rule doesn't necessarily mean that the economy is about to go of the deep end; sticking to one can't guarantee that everything will be rosy.

But Brown has put big store by them - and as economic credibility underpins his political reputation, his performance based on, and statements about, the rules are fair game for FactCheck scrutiny.

FactCheck rating: 2

How ratings work

Every time a FactCheck article is published we'll give it a rating from zero to five.

The lower end of the scale indicates that the claim in question largely checks out, while the upper end of the scale suggests misrepresentation, exaggeration, a massaging of statistics and/or language.

In the unlikely event that we award a 5 out of 5, our factcheckers have concluded that the claim under examination has absolutely no basis in fact.

The sources

Budget 2008
IFS: Green Budget 2008
Related FactCheck: has Gordon Brown met his golden rule?

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