Brown set to ditch key economic rule as UK borrowing soars

Published on Friday 18 July 2008 22:05

GORDON Brown has been accused of gambling his reputation for economic prudence by plotting to ditch one of his key fiscal rules as the UK borrowing level reached a record high.

The Treasury is believed to be reviewing the Prime Minister's rule that restricts government borrowing to 40 per cent of national income to allow the borrowing of billions more.

Figures released yesterday showed that borrowing had already reached 38.3 per cent of GDP, perilously close to breaching the rule.

The budget deficit, at 9.3 billion last month, was the worst-ever figure for June. Public-sector net borrowing for the first quarter of the financial year was 24.4 billion – the biggest quarterly figure since records began in 1946.

Opposition parties pounced on the speculation that the government would loosen its strict rules on debt just ahead of breaking them, claiming it showed that Labour had lost its grip on the economy.

George Osborne, the shadow chancellor, said Mr Brown now resembled an "alcoholic who has just given himself the keys to the drinks cabinet".

He added: "The Brown era of economics is over. He staked his credibility on the fiscal rules."

Vince Cable, the Lib Dems' treasury spokesman, said it was "humiliating" for the government to have to bend its rules.

With falling receipts from stamp duty because of the housing market downturn, the government will have little choice but to cut spending, raise taxes or increase borrowing.

The final measure would require it to breach its own sustainable investment rule, while the other two options would be deeply unpopular with voters.

Alistair Darling, the Chancellor, signall-ed that the rules were under review, but insisted no decisions had been made yet about relaxing them. He said it was right that, at a time when the world's economy was being hit by the credit crunch and high oil prices, borrowing should be allowed.

Mr Darling added: "What is crucial is you have rules to ensure public finances are sustainable in the medium term."

Mr Brown's official spokesman refused to comment on whether discussions had taken place in government about dropping the rule, but he pointed out that a number of modern economies had much greater levels of debt compared to Britain, including the United States (47 per cent), Germany (57 per cent) and the eurozone (55.9 per cent).

Meanwhile, fears over the economy deepened yesterday when Sir John Gieve, the outgoing deputy governor of the Bank of England, said the chance of the UK falling into recession had "increased" since May.

Sir John outlined an "uncomfortable" year of soaring inflation, slowing growth and rising unemployment. The bank expects rocketing fuel, food and commodity prices to see inflation remain "well above" 4 per cent for the rest of the year.

Think tank broke impartiality rules

A THINK tank accused of being too close to Gordon Brown broke the impartiality rules for charities, the Charity Commission has ruled.

It said the Smith Institute was "not always as sufficiently balanced and neutral as required under charity law".

It found no evidence that it had been used to drive Mr Brown's aspirations, but found a number of instances when its "balance and neutrality" had been "compromised".

Opposition politicians have long accused the think tank of being a front for Labour and Mr Brown.

But the watchdog said the institute had produced work for the public good, and that it had been "reasonable" for it to employ Ed Balls, Mr Brown's key ally, before he was elected to parliament.

The Prime Minister had not replied to the Charity Commission's letter for help with its inquiry.