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Brown On Track To Meet Golden Rule, Says IFS

by Jason Gorringe, Tax-News.com, London

22 February 2007


On Tuesday, the Office for National Statistics and HM Treasury published 'Public Sector Finances January 2007', giving details of central government receipts, central government spending, public sector net investment, borrowing and debt for the first ten months of financial year.

Commenting on these figures in an Institute for Fiscal Studies analysis, Christine Frayne, a senior research economist at the IFS, observed that:

“Today’s figures show that the Chancellor is on track to meet his golden rule over a cycle starting in 1997–98 and ending in 2006–07. With just two months to go until the end of the Treasury’s estimate of the cycle, the public sector current budget figures from the year to date indicate that Mr Brown is likely to overshoot his deficit figures for this year slightly, but still meet the golden rule over this cycle."

She continued:

"While this month’s data show a reasonably strong position for the public sector, central government has not shown the increase in receipts or slowdown in current spending growth necessary for the Chancellor’s Pre-Budget Report forecasts in these areas to be met. This is due to a combination of weaker-than-expected corporation tax receipts and stronger-than-expected growth in current spending by central government departments on public services."

"Conversely revisions to estimated public sector net investment since June 2006 suggest that investment spending is likely to come in below the Treasury forecasts.”

Headline comparisons drawn by the IFS included:

  • Central government current receipts in January were 0.2% higher than in the same month last year. The December 2006 Pre-Budget Report forecast for 2006-07 implies an increase over last year's levels of 6.8% for the year as a whole and of 7.0% for the period from November 2006 to March 2007. The latest figures show an increase over last year's levels of 5.9% for the year to date and a 4.4% increase in November 2006 to January 2007 over the same three months last year.
  • Central government current spending in January was 6.1% higher than in the same month last year. The December 2006 Pre-Budget Report forecast for 2006-07 implies an increase over last year's levels of 4.9% for the year as a whole and of 2.4% for the period from November 2006 to March 2007. The latest figures show an increase over last year's levels of 6.0% for the year to date and a 4.3% increase in November 2006 to January 2006 over the same three months last year.
  • Public sector net investment in January was £0.9bn higher (31.0%) than in the same month last year. The December 2006 Pre-Budget Report forecast for 2006-07 implies an increase of 21.8% for the year as a whole and an increase of 24.3% for the period from November 2006 to March 2007. The latest figures show an increase over last year's levels of 15.8% for the year to date and a 10.4% increase in November 2006 to January 2007 over the same two months last year.

Assessing Mr Brown's compliance with his 'golden rule', the IFS analysis explained that:

"The Chancellor’s ‘golden rule’ requires public sector current spending to be met entirely out of public sector receipts over the course of an economic cycle – in other words, that the public sector current budget should be in balance or surplus on average over the cycle. The government should only borrow to finance capital spending."

"The Pre-Budget Report states that “the Government’s judgement is that the current cycle started in 1997–98. Based on assumptions used in these projections the economy will return to its trend level, ending the current cycle in early 2007”. This and other figures contained in the Pre-Budget Report imply that the Treasury now expects the cycle to run from 1997–98 to 2006–07. The cumulative surplus over the years from 1997–98 to 2005–06 is estimated to be GBP17.5bn, so the golden rule would be met if the deficit on the current budget is no more than GBP17.5bn in this financial year."

" December’s Pre-Budget Report projected that the current budget would be in deficit by GBP7.9bn this year, which would mean that the golden rule would be met, albeit with just GBP9.6bn to spare over a ten year cycle. So far this financial year the cumulative current budget deficit is running at 56% of the level that it was at this point last year. Should this trend continue over the remaining 2 months of the financial year the current budget deficit for the whole of 2006–07 would be GBP8.5bn. This would be slightly above the Pre-Budget Report projection (GBP7.9bn) and slightly below the January 2007 IFS Green Budget projection (GBP9.2bn)."

"A current budget deficit of GBP8.5bn in 2006–07 would mean the Chancellor would meet the golden rule over the current cycle with a margin of GBP9.0bn."


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