Economic Stability - The Golden Rule

Written by Dr. Vincent Cable MP - Liberal Democrat Shadow Chancellor of the Exchequer and published in Parliamentary Monitor on Sat 20th Aug 2005

This year has been dominated by Gordon Brown's "will he, won't he" struggle to meet his self-imposed Golden Rule, culminating in several attempts to move the goalposts. Redefining the economic cycle to accommodate the deficit is simply to undermine the credibility of the Rule. The Rule was based on a fairly simple premise and for several years, it appeared that it was working. It now appears that one of the cornerstones of the Rule has been flouted by the Chancellor: borrowing only to invest, not spend.

The National Audit Office, at the Chancellor's invitation, reviews some parts of the Budget but cannot instigate a proactive investigation. However, for some time, I have been calling for the Treasury to submit to a full and ongoing programme of inspections by the public spending watchdog. If the Treasury has nothing to hide, as Gordon Brown asserts, independent evaluation would provide credibility, which the Treasury and indeed, Government as a whole desperately need at the moment. The National Audit Office (NAO) could report to Parliament at the time of the Pre-Budget report and the Budget, having assessed the government's fiscal performance and making recommendations on any correction required. Currently there is no accountability and we can only guess the scale of the shortfalls. Mr Brown has refused my proposal.

The Liberal Democrats have also called for a truly independent national statistician. Doubts over some judgements by the Office of National Statistics, have led to a call for full independence from Government. The Liberal Democrats support that call. It is imperative that government statistics are not only produced with detached, non-political professionalism but are seen to be beyond reproach. For too long the Treasury has been a shadowy and enigmatic organisation. With NAO inspections and a truly independent body of statisticians, the Treasury has more accountability and can be better scrutinised.

Britain's economic stability, under Gordon Brown, has been remarkable: defined by steady growth, low inflation and falling unemployment. However, in the last year we have seen clear signs of a slowdown and tax revenue is failing to meet forecasts. Spending commitments have however continued full-throttle. In addition to the continuing expense of the Iraq War, money has been pledged to the uncosted and unpopular ID card scheme, defence projects and child trust funds. Questions are now being raised about how the Treasury will respond to serious issues including the slowdown in the housing market and rising levels of personal debt. In March, the pre-election Budget was very much geared towards populist gimmicks: raising the stamp-duty and inheritance tax thresholds funded by the seemingly painless closing of loopholes. It will be interesting to watch the Chancellor's next move.