Page last updated at 13:06 GMT, Friday, 18 July 2008 14:06 UK

'No decision' on borrowing rules

Treasury building
The government is set to face a tax revenue shortfall

Chancellor Alistair Darling says he has made no decision on relaxing government rules on borrowing, but said they are constantly kept under review.

He said the world's economy was going through its "greatest shock" for 60 years. The government had to help but rules remained "critically important".

The Treasury is considering changing the rule that public sector debt should not exceed 40% of national income.

The Tories say it would be the end of Gordon Brown's reputation for prudence.

The BBC understands that officials are drafting a looser framework so that the Treasury would not have to break the present borrowing limit of 40% of national income.

The rules were laid down by Mr Brown as chancellor after Labour came to power in 1997 - he promoted them as evidence of the prudent way he was running the economy.

And the first major test, the first economic downturn that the world has faced, he has to abandon them
George Osborne
Shadow chancellor

But it is predicted these will be breached as the government faces an 8bn tax revenue shortfall, because of the slowdown on the High Street, the housing market stalling and a drop in company profits.

But speaking to BBC Radio 4's World at One programme, Mr Darling said: "I've made no decision. I said 12 months ago in I think the very first interview I gave as chancellor to the Financial Times that we always keep these things under review.

"So there's nothing new there. I'll report at the pre-Budget report to the House of Commons this autumn on where I believe we are. But I believe that rules are important."

He said debt levels were lower than Germany, France, Japan and the US and had been "substantially" reduced since 1997.

"We go into what is a difficult position from a much much stronger position than we had in the past," he said.

He said it was right, while the world's economy was being hit by "two shocks" - the credit crunch and high oil prices - that borrowing is allowed to support the economy.

FROM THE WORLD AT ONE

"But what is crucial is that you do have rules to ensure that public finances are sustainable in the medium term. That is why rules are so important now and will remain important in the future," he said.

Speaking earlier shadow chancellor George Osborne said: "It's basically the end of the Brown era of economics."

Liberal Democrat Treasury spokesman Vince Cable described news of the Treasury's deliberations as "embarrassing, even humiliating" for the government.

In the House of Lords, the Tory ex-Scottish Secretary Lord Forsyth asked why, in a Finance Bill debate, Treasury spokesman Lord Davies had not referred to the claims once in his 20-minute speech.

He said as chancellor Mr Brown had always talked about not returning to boom and bust, adding: "Well, we have had the boom and today we have had confirmation of the bust."

Robert Chote, director of the Institute for Fiscal Studies, said the government should have rethought the rules "before the point at which it looks as though you are just about to break them".




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