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Brown is the Fiscal Rules

• Robert Peston
• 18 Jul 08, 08:31 AM

The is insisting that there's nothing new in this morning's disclosure in the that the chancellor is planning to revise the fiscal rules that control how much the government can borrow through the .

It says that Dave Ramsden, the Treasury's chief economic adviser, said precisely that to the after this year's budget.

If he did, the shameful truth is that it passed me by - and was apparently unnoticed by the ruling party, the opposition and the media.

More importantly, the Treasury has now confirmed that the rules will be changed, though without saying quite how - for the reason that the Chancellor, Alistair Darling, hasn't made up his mind and won't do so till the pre-budget report in the Autumn.

The current rules are these: over the course of the economic cycle, the government can borrow only to invest (or not to fund current expenditure, like Ramsdens' wages); and the ratio of national debt to GDP must not exceed 40% in any given year (in a recent Today interview, the PM got this one wrong - which I found a unsettling, since they were his great invention in 1995).

So why would the government want to amend these?

Well, we're knocking up against the 40% debt limit. Which means that, in the new economic cycle (probably starting now, in the Treasury's idiosynchratic view), there would be very significant constraints on public-spending growth.

That might not be in the interests of an economy that's slowing down fast, and could perhaps benefit from a bit of oomph contributed by the public sector. And it might also not be in the interests of a Labour Party facing a general election in less than two years.

So any reform would almost certainly make it easier for the government to spend a bit more in our current straitened economic circumstances.

But more that that, it's very difficult to predict what will happen to the precise wording of the rules.

Here's the dilemma for chancellor and prime minister.

These rules have been stretched and tugged and tweaked since they were introduced in 1997, to make absolutely certain that they weren't breached. And in the process their credibility has been damaged.

But they still matter.

They were, along with giving control of interest rates to the Bank of England, the symbol that New Labour had made a decisive break from so-called old Labour in its stewardship of the economy.

To put it starkly, they buried Labour's past as the tax-and-spend, boom-and-bust party and allowed it to claim that it was the new natural party of government.

The rules were forged in the furnace that created that formidable reputation for economic competence that G Brown once enjoyed - which some of us are old enough to remember (and one of us even wrote a book about).

So although the rules have become irksome and inconvenient for the government, it would be perilous for the prime minister if they were dumped or changed in a very significant way - a vital part of his political soul would be extinguished.

Some might ask, without the fiscal rules who is Gordon Brown?

UPDATE 14:01

I can't find any quotes from Dave Ramsden to the Treasury Select Committee in which he says that the fiscal rules are being re-examined for possible revision. And the Treasury is no longer sure that they exist. So perhaps I, the rest of the media and MPs weren't asleep at the time.

Hoowever, on July 3 2007 - or more than a year ago - this is what Darling said in an interview with the FT (which was his first interview as Chancellor):

FT: "Can I ask you a couple of questions on the macro economic framework. You said stability is clearly going to be the most important piece of continuity. If we're looking at the Treasury's own way of looking at the economy, we've now come to the end of the cycle. Do you think this is a time to start reflecting on the fiscal rules and the monetary framework? Is there any need for any changes?"

Alistair Darling: "Well, I think on the first one, I don't think the Treasury has formally made a decision on. That's clearly something that I need to reach a decision on at some stage. But I think that the fiscal rules we have have made a contribution to the very stability that I've talked about. But as Gordon has said in the past...you always keep these things under review. But I think that people want to make sure that we have that certainty that Government is going to conduct itself in a way that it is prudent in relation to the finances, both in terms of the golden rule and the sustainable investment rule.

"But, like all these things, of course you keep them under review. But if you ask me am I going to tear all these things up, then having done this for the last ten years let's go off on a different course, no, I'm not. Because I think that that would be to discard a pretty central plank in everything that we've done."

Darling referred back to this interview - when talking to the World at One an hour ago - as evidence that for some time he's been considering a change in the fiscal rules. But his remarks back then can also be seen as manifesting strong support for the spirit of those rules.

It remains to be seen whether the spirit of the rules will be preseved in any future re-writing.

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