After the fiddled figures comes the changed rules. For years we have been served up a diet of changed statistics, altered bases for setting out public spending, a riot of off balance sheet disguises for extra borrowing, and changes in the dates of the famous cycle that is meant to anchor the government’s spending controls. Despite all that we learn today that even the government think their so called fiscal rules lack credibility, so we are to have new ones that allow the government to carry on borrowing as if there were no day of repayment.
“Fiscal rules lacking credibility” is a smart way of saying no-one believes them any more. No wonder. I have set out how I think the true balance sheet indebtedness of the UK government including unfunded pension liabilities is around £1500 billion, or more than 100% of our National Income. To be told we are still just below 40% of National Income on the government’s measure, staying within this control, is absurd. If the government wants to have a control over total debt it should include the borrowings of Northern Rock, Network rail, all the PFIs and PPPs, even if still refuses to include the pensions deficits that any private sector company now has to put on its balance sheet. That alone would mean they would need a debt ceiling above 50% of National Income unless they are going to start cutting their debt burden..
Then there is the sustainable investment rule, which says they should not borrow more than they need to pay for capital items across the cycle. This allows them to borrow for current spending – to live on overdraft – for years on end, as the cycle may last 12 years and is their flexible friend. They only tell you when the cycle ends when they feel like it and after it has happened! A better rule would be to limit borrowing to capital and a specified percentage for current spending if economic growth falls below a stated level, and to require proportionately less borrowing than capital spend when economic growth exceeds the same level, which should be set at the trend or average rate of growth.
What matters today is not efforts to change the rules, but efforts to control spending and borrowing more effectively. This week I was sent a note telling me that work is advancing on having more honest, understandable and consistent figures for public spending after all these years of fiddled figures. I emailed back with the ironic enquiry that I assumed this work would not be ready until the 2010-11 financial year, just in time for a new government if one is elected. Quick as a flash I was emailed back to tell me that was exactly the expected date of introduction! I just trust the sender shared my sense of irony. Clearly some are preparing for a new government, and think it should not have access to the flexible presentation of the current regime.
July 18, 2008
Yes, we’ve had claims to be the second biggest defence spender in the world (!) to simply inaccurate suggestions labour inherited rising inflation, we know that more than four out of five of the jobs that “labour created” are filled by immigrants and if you take out these and the public sector there are in fact fewer people at work than when they were elected, but still five million economically inactive, a collapsing currency (hence imported inflation), further inaccurate claims that we have the lowest inflation in Europe, our debt has exploded in the economic boom where as really prudent countries (like Denmark) actually reduced their debts, our balance of payments is awful and real inflation that people experience bears no relation to the government’s East European style “tractor production statistics” an ever rising tax burden and Byzantine systems of raising taxes, utterly clueless ministers, meanwhile you better buy a stab vest.
This is Mugabe-style economic competence, and this new figure fiddling doesn’t fool anyone.
July 18, 2008
This latest move really does take the biscuit. Mr Brown invents arbitrary fiscal rules, changes established accounting methods in order to stay within them, claims everything is on course to remain within them for the next year and then, within four months of the budget, decides to change them because there are no more possible manipulations to keep his spending within the old rules.
This is my guess as to how it will pan-out. First, he will blame changed circumstances overseas for the need to move the goalposts. Secondly, he will claim that he is bringing the rules up to date (I doubt that even he will have the gall to call it “modernisation”, but you never know). Thirdly, he will claim he has to maintain spending at current levels to protect “investment” in schools and hospitals. Fourthly, he will distance himself from the move when heavy fire is received and refer to it as a change made by Mr Darling. Fifthly, and most inevitably of all, not for even a nanosecond will he accept that he has made any mistakes.
It is a pattern of deceit and bluster we are only too accustomed to by now and it tells us so much about the man. The situation is laughable, not that there is scope for laughter when he is steering the economy straight down the pan.
July 18, 2008
I am impressed with Fraser Nelson’s assessment of the situation in the Spectator’s Coffee House blog today, it confirms many folks’ suspicions that the Broons know the game is up and are determined to wreck the economy on their way out with a scorched earth policy.
It could well mean that the Conservatives will face a very tough first term after the next election.
July 18, 2008
I am no economist, but I always thought Gordon Brown’s “Golden Ruleâ€Âť made sense. I have the feeling that the news the rules are being changed will be very damaging to his reputation. It seems to me that Golden Rule is actually a good one, even if it suffers from the obvious problem of having to guess in advance how long the economic cycle will be.
It seems to me that the cause of the problem is that the rule was not enforced properly because of wishful thinking that some day-to-day spending can falsely be called investment and so funded from borrowing.
Would it not be better to stick with the Golden Rule in future but be far more rigorous in differentiating current spending from investment? This would allow the efforts you champion to control spending to be focussed on the recurring (operational) costs while still allowing real investment (i.e. that which produces a return on the investment) to go forward in the many areas where it is needed? I do not see the need to have a similar close focus on controlling borrowing if it would truly only be used to fund investment that resulted in a real rate of return higher than the interest on that borrowing. Of course some small-scale borrowing might be needed in some lean years to cover unexpectedly high recurring costs and that borrowing should be watched like a hawk.
Indeed would indeed like to see the state pay off its debt completely over time, though I never heard anyone suggest that. That might make a nice 10-year national challenge to rival Al Gore’s call yesterday.
July 18, 2008
When I had the problem of working in two Socialist Schools, I found that I was dwelling in cloud cuckoo land.
For instance, in a strongly white working class area, there was a deliberate school policy of employing (minority community) teachers.
For instance, there was a policy of not having assemblies because "the children could not fit into the hall". (They did when someone deliberately ruined a GCSE examination by running through the hall shouting.) For instance, nobody could understand the History syllabus because it was incomprehensible. So they did colouring instead.
To argue with any of this was seen as heresy – or worse, racism/homophobia which were offences for which you could be sacked on the spot.
I find the same sort of thing is happening today. Where do you start?