Darling: fiscal rules under review

8:40pm Friday 18th July 2008

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Chancellor Alistair Darling said the Government's much-vaunted fiscal rules were "under review".

But Mr Darling insisted no decision had been taken on whether to loosen them to allow more borrowing.

With official figures showing net borrowing hitting a record £24.4 billion in the first quarter of the financial year, economists said ministers were faced with a choice between raising tax, breaking the rules or relaxing them. Conservatives said it was "the end of the Brown era of economics".

Prime Minister Gordon Brown staked his credibility on the rules in 1997, but was ditching them when economic difficulties put them to the test, said shadow chancellor George Osborne.

The figures from the Office for National Statistics showed net debt at 38.3% of GDP - up one percentage point on a year ago - bringing it perilously close to the 40% limit imposed by the Government's sustainable investment rule.

The ratio increases to 44.2% when the impact of nationalised lender Northern Rock and Bank of England lending is included in the figures.

Analysts have also questioned whether Mr Darling will be able to meet his golden rule, which requires the Government to only borrow to invest over the economic cycle.

Quarterly net borrowing was £9.6 billion higher than the equivalent period last year after a figure of £9.2 billion was recorded for last month - the highest for June since monthly records began in 1993. With previous figures being revised higher, the quarterly figure was the highest since the war.

Reports in the Financial Times suggesting Treasury officials were drafting a looser framework were dismissed as "pure speculation" by the Treasury, which said that the fiscal rules for the next economic cycle will be set out at the end of the current cycle.

Asked whether the rules would be changed, Mr Darling told the BBC: "I have made no decision. I said 12 months ago... that we always keep these things under review, so there is nothing new there."

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