Leatherhead Matters

The Golden Rule was officially adopted by  Gordon Brown when he was Chancellor of the Exchequer.

The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. This means that on average over the ups and downs of an economic cycle the government should only borrow to pay for investment that benefits future generations. Day-to-day spending that benefits today’s taxpayers should be paid for with today’s taxes, not with leveraged investment.

Gordon Brown has fiddled his own rule by redefining the timing of the start of the economic cycle, when he moved the cycle to two years earlier (from 1999 to 1997). This allowed him to add another £18 billion – £22 billion more of borrowing and still argue he hadn’t broken his “Golden” rule.

The Government’s other fiscal rule is the Sustainable Investment Rule, which requires it to keep debt at a “prudent level”. This is currently set at below 40% of GDP in each year of the current cycle.

There are very strong rumours that the current Chancellor is finally going to admit defeat and abandon one of these two rules in an announcement during the next few days. Government revenues are expected to be significantly lower than forecast as the economic downturn bites and the housing market crumbles.

Come back Prudence, New Labour may have abandoned you but, I come from a generation which loved you! Remember this………