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Prudence must die?

• Robert Peston
• 25 May 07, 01:50 PM

Top of the in-tray for the next Chancellor - who'll probably be - is a momentous decision of absolutely no interest to most of the electorate.

It is whether to amend Gordon Brown's cherished sustainable investment rule. Yawn.

That's the rule which limits the national debt to no more than 40 per cent of gross domestic product - and was put in place by Brown in 1997 as part of his plan to prove that Labour could be trusted as steward of the public finances (all previous experience of Labour governments to the contrary).

If you're still awake, here's why this matters.

Unless the ceiling is raised or the rule is made more flexible, there will be severe constraints on the ability of the public sector to invest in new infrastructure - because, after years of splurging by Brown, the national debt is uncomfortably close to that limit.

One pressing case of a massive transport project that currently can't be approved because of the sustainable investment rule is - the hoary old proposal to link east and west London with a new train line.

The business community wants Crossrail. The London mayor wants Crossrail. Tony Blair wants Crossrail. Even Gordon Brown has indicated support for it and the is working overtime on its financial viability.

But it could require about 拢16bn of borrowing, of which more than half would end up on the Government's balance sheet, even after employing the most creative accounting techniques (a couple of billion could for example be dumped on , which remains outside the public sector for accounting purposes).

The Treasury has calculated that giving Crossrail the green light would bust the sustainable investment rule, no matter how the books are fiddled.

Now if there really is a need for Crossrail, it would seem nuts for it not to happen simply because public sector debt could end up a bit above 40 per cent of GDP.

But on the other hand, Brown's vaunted "prudence" in management of the public finances is already seen by financial markets as half-dead and on a life-support machine. Breaching or amending the sustainable investment rule could be seen as the switching-off of the oxygen pump and removal of the feeding tubes.

So it's a tricky one: fiscal virtue versus investment to sustain London's international competitiveness? Death for prudence or a new trainset for the fat controller?

Whatever's decided will say a great deal about the priorities in Brown's Britain.

PS I'm away for a few days, so probably won't be posting again till early June.

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