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Wednesday, 14th May 2008

The fiscal rules take a battering

Peter Hoskin 8:57am

Alistair Darling's 10p tax compensation measure – which we've been covering over at Coffee House, and which will add £2.7 billion to the national debt – is set to trample all over the Government's fiscal rules. Specifically, it should breach the sustainable investment rule, by which debt should remain under 40 percent of GDP. Here's one economist's take on it:

“Mr Darling might argue that other factors like high oil prices will have an offsetting downward effect on borrowing and debt. But if the economy slows as sharply as we expect, this will all be irrelevant - borrowing will rise much more sharply and the fiscal rules will be comprehensively broken.”

When Chancellor, Gordon Brown used various fiscal sleights of hand to ensure that the rules weren't broken. It's one of the reasons why most economists regard them as valueless. What's more, it means that Darling's now left carrying the can, having to explain why they've been broken for the first time.

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