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Last Updated: Tuesday, 19 July, 2005, 23:11 GMT 00:11 UK
Brown 'cheating' claim on budget
Civil servant protest
Changing the rules may be easier than more civil service job cuts
Chancellor Gordon Brown has been accused by his opponents of "cheating" after he announced changes in the way he will measure the budget deficit.

The Treasury is planning to stretch the economic cycle to nine years to avoid breaching its "golden rule" on balancing the budget over the cycle.

Shadow Chancellor George Osborne said the move was "a smokescreen to conceal his fiddling of the golden rule".

Mr Brown said the change was driven purely by revised economic data.

This statement makes a mockery of the Golden Rule
Vince Cable, Liberal Democrat Treasury Spokesman

The effect of the change is to add an extra 10bn-12bn to the chancellor's coffers - by adding two more years to the cycle when the budget was in surplus.

The opposition say the move has damaged Mr Brown's reputation as the Iron Chancellor.

CHANGING THE GOALPOSTS

Mr Osborne said that "this manoeuvre destroys the credibility of the golden rule and demolishes once and for all his reputation for prudence".

Mr Brown has insisted that he would meet his self-imposed rules even without this change.

But, with the Chancellor in danger of breaching his rule in the current financial year, the adjustment will reduce pressure to raise taxes next April.

Under the "golden rule," the current budget must be in balance over the economic cycle as a whole.

Fixing the public finances

The news, announced by Mr Brown in testimony to the Treasury Select Committee, is the most significant revision of the fiscal rules since Mr Brown gained his reputation for prudence by publishing them in 1998.

BUDGET TROUBLES MOUNT
With the Chancellor effectively acting as judge, jury and executioner, it was always going to be hard to secure a conviction under the golden rule in this cycle
Peter Spencer, ITEM club

The Chancellor now says that the current economic cycle began in 1997, not 1999 as previously thought.

Mr Brown does not have to formally announce the change until he delivers the government's economic forecast in the pre-Budget report in November.

The move comes as many independent forecasters warn that the government is in danger of breaching its own rules this year, as tax receipts have been falling below expectations, while spending continues to grow.

Mr Brown told MPs that the change was fully justified given the significant revisions to GDP data made by the Office for National Statistics.

But he denied that the change of definition had anything to do with his budget difficulties.

"We would meet the Golden Rule irrespective," he told the committee.

Negative reaction

Mr Brown's plan was criticised by the opposition parties and independent commentators.

Liberal Democrat Treasury Spokesman Vince Cable said the move "makes a mockery of the Golden Rule."

Martin Weale, head of the respected economic think tank NIESR, said that the golden rule now "should be replaced by an independent expert assessment of whether the current budget is expected to be in balance or surplus in the medium term".

Chief CBI economist Ian McAfferty added the move was simply a way to delay tough decisions about tackling the "structural deficit" of public finances.

"The Treasury announcement that the fiscal goalposts have been shifted reflects the mounting problems with the Government's finances," he said.

And Peter Spencer, who analyses trends in public spending for Ernst & Young's ITEM club, said: "The chancellor's big problem is that he will start the next cycle in serious structural deficit with no obvious political window of opportunity for correction."

Some experts warned that the shift could lead to tax rises or spending cuts in the coming year as Mr Brown will be forced to start the next economic cycle from a weaker position.

Spending review on hold

Mr Brown compounded the impression that the public finances are in difficulty by announcing that he was postponing the next spending review for one year, from 2006 to 2007.

And he said it would be "zero-based," and departments should not assume that they will be funded at the same level as before.

The effect of this move will be to ensure that the planned squeeze on public spending, scheduled to start in 2006, cannot be challenged by government departments.

The Chancellor had already announced substantial jobs cuts to the civil service in 2004.

Mr Brown will now have a chance to assess more fully the state of the public finances before departments begin planning for spending in 2008-11, a period that will cover spending through the next General Election..

That spending review will now come as Tony Blair is celebrating 10 years as Prime Minister, and during the period that Mr Brown is widely expected to put his hat in the ring as his successor.

Reputation for prudence

Mr Brown has staked his reputation as a New Labour chancellor on his absolute commitment to fiscal prudence.

By effectively moving the goalposts, he will be more confident that he will be able to meet his fiscal rules - at a time when their breach would have damaged his chances of succeeding Mr Blair.

Mr Brown has also effectively postponed for several years making any tough decisions about raising taxes or cutting spending, which might have been necessary if he had been in danger of breaching his borrowing rule.

However, he may have won a Pyrrhic victory if his actions reduce the Labour government's hard-won credibility in financial markets.

This could lead to higher borrowing costs for government debt.


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What the changes means for the taxpayer



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