Current economic cycle 'to end in 2005'

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The Independent Online

The Government could borrow even more money in the run-up to a general election without raising taxes or cutting spending, it emerged yesterday.

The Government could borrow even more money in the run-up to a general election without raising taxes or cutting spending, it emerged yesterday.

In a little-noticed change the Treasury used the pre-Budget report to extend the length of the current economic cycle. It is now forecast to end in 2005 rather than 2003 as predicted in the Budget.

The timing is crucial in determining whether the Chancellor has met his "golden rule" to balance the public finances "over the course of the economic cycle".

The National Institute for Economic and Social Research, which last month warned the Treasury might "fudge" its fiscal rules, said it had been vindicated.

Martin Weale, its director, said if the cycle had ended in 2003 the Government would have had to go into a general election campaign carrying a massive deficit that would have raised questions over future tax hikes. "They [the Treasury] can defend it in terms of the numbers but one would rather that it was assessed by an outside body," he said.

"It is certainly true that if it has been extended up the likely election time it does allow the Chancellor to say that the deficits are not a problem because they are covered by the golden rule."

Ian Stewart, chief European economist at the investment bank Merrill Lynch, said the Chancellor had a further £46bn he could use over the next three years.

"Such an explosion in borrowing is unlikely but the Government does have enormous scope to raise spending without increasing taxes," he said.

Michael Howard, the Conservative Shadow Chancellor, accused Gordon Brown of being "in a state of confusion" over the economic cycle.

"Is the Chancellor planning to do what has been suggested and try to make the cycle last longer?" he asked in the Commons yesterday. "Is not the truth that he is trying to adjust the economic cycle to suit his fiscal policy?"

The Treasury dismissed the argument as an "ethereal debate", insisting that surpluses built up in the late 1990s meant the rule would be met on any measure of the cycle.

"I don't think whether we meet the fiscal rules is particularly sensitive to where this cycle ends because of the £46bn accumulated surplus," a spokesman said.

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