Golden rule threatened by Brown's overspending, says IFS

Gordon Brown is even closer to breaking his golden rule on the public finances than he admitted to MPs on Wednesday, a leading independent think tank said yesterday.

The Institute of Fiscal Studies said that while the Chancellor boasted he would balance the books with £14bn to spare, the pre-Budget report said the margin was just £4.5bn.

The Treasury said the IFS had "misunderstood" the figures, but the spat is likely to awaken fears the Treasury might use accounting tricks to prevent the humiliation of breaking the fiscal rules.

It will also add to mounting speculation that the Chancellor will have to raise taxes again, probably after the next election.

In its assessment of the Chancellor's new figures, the IFS said it was "touch-and-go" whether he would meet his golden rule that non-investment spending is no greater than tax receipts over the economic cycle.

It said he was being too optimistic that tax revenues would return to boom levels despite recent evidence that receipts have fallen even as the economy had grown.

"It is not obvious that the improvement in the underlying fiscal position will be as strong as the Chancellor expects," said Robert Chote, the IFS director.

"If the Chancellor wishes to stick with his current spending plans and meet his fiscal rules with the comfort he has sought in the past we suspect further tax rises will eventually be necessary."

Mr Brown insists he will hit his fiscal rules despite borrowing an extra £10bn this year and a total of £152bn over the coming five years.

"We have an average annual surplus over the whole cycle of around 0.2 per cent of GDP - meeting our first rule in this cycle by a margin of £14bn," the Chancellor told MPs.

The IFS said the Treasury used a new method of calculation to achieve £14bn having previously used the methodology behind the lower figure.

The Conservatives seized on the claims. Oliver Letwin, Shadow Chancellor, said: "Experts are suggesting he has moved the goalposts when it comes to measuring his performance against the golden rule, with the happy consequence of increasing his room for manoeuvre."

RULE CHANGE

'By 2005-06, when the current cycle ends under the assumptions used in these projections, the accumulated total surplus over the economic cycle will be £4.5bn.' (Paragraph B37, 2003 PBR)

'... we have an average annual surplus over the whole cycle of around 0.2 per cent of GDP - meeting our first rule in this cycle by a margin of £14bn.' (Gordon Brown, 2003 PBR speech)