Belfast Telegraph

Darling on brink of abandoning the Government's fiscal rules

Chancellor Alistair Darling is understood to be close to temporarily abandoning the Government's fiscal rules rather than changing them when he presents his pre-Budget report later this autumn.

The UK's public borrowing will break through the £50bn mark in this financial year and the 40 per cent ceiling on total debt will be breached in 2009.

This means Mr Darling has to choose whether to abandon the rules temporarily, with a commitment to return to them within a specific period, or produce new fiscal rules. He has not made a final decision but sources say he is moving towards announcing a temporary suspension rather than rewriting the rules, as he has been advised that this would be more acceptable to the financial markets.

By choosing an interim suspension, Mr Darling hopes to defend the Government against accusations of incompetence and regain the confidence of the City. It would also mean that the fiscal rules, the centrepiece of Gordon Brown's period as Chancellor which have governed Labour's stewardship of the economy, would remain at the core of official policy.

The Chancellor is also likely to announce that the timing of the economic cycle – central to the golden rule that the Government can borrow only to invest and not to fund current spending – will be independently certified so that a future chancellor will be unable to manipulate it to suit his or her purposes. Current rules limit borrowing over an economic cycle to 40 per cent of national income. If Mr Darling were to change the rules, he would defend the move by arguing that a new cycle began in March; a changing of the rules is only allowed at the end of the cycle.

Public-sector borrowing stood at £24.4bn in the first quarter of the year, its highest in more than 60 years. The deteriorating fiscal position, and the need to present a credible pre-Budget report, go far to explaining the tone of the comments the Chancellor made while on holiday last week. In a Guardian interview, Mr Darling described present economic conditions as "arguably the worst they've been in 60 years. And I think [the downturn] is going to be more profound and long-lasting than people thought."

Those remarks have been interpreted as Mr Darling wishing to distance himself from the Prime Minister so as not to be blamed for the difficulties he has inherited. While that may be part of the reason for his frankness, there was perhaps a more immediate objective. He will have to announce slower growth in public spending and, to make this credible, he needed to explain that international conditions were exceptionally difficult. The reduced spending could therefore be attributed to the global economy rather than Labour's domestic management.

Belfast Telegraph