Labour is committed to ensuring that, on average over the economic cycle, public debt as a proportion of GDP remains at a stable and prudent level. Gavyn Davies contrasts this with the Conservatives' objective of a balanced budget and concludes that the latter is tougher.
But the Government's objective is not to balance the budget on average over the economic cycle. In fact, the Government's fiscal objective has been progressively weakened over the past decade. In 1988, it was to balance the budget every year. By 1991, it had slipped to balancing the budget on average over the cycle. By 1994, it had weakened again to balancing the budget in the medium term.
And now, as Gavyn Davies acknowledges, Kenneth Clarke's declared objective is merely to "bring the PSBR back towards balance over the medium term" - not on average over the cycle but in one year at its end.
The Government's fiscal objective says nothing about how much borrowing can occur in the meantime. Indeed, it is quite consistent with a rising ratio of debt to GDP, as current events confirm. Since the beginning of the current economic cycle in 1990, the PSBR has averaged 4.1 per cent a year. Last year's Red Book predicted that the PSBR would return to balance in the financial year 2000/2001. But even over the entire cycle 1990/91 to 2000/01, the Red Book shows that the PSBR would be an average 3 per cent of GDP a year - considerably higher than the average of 2 per cent a year which Gavyn Davies calculates would be needed to stabilise the debt-GDP ratio.
The latest Summer Economic Forecast has again revised upwards the Government's forecasts for public borrowing - and presumably put back the date at which the "medium term" and elusive balanced budget will arrive. But the Summer Forecast does reveal that the Government expects the ratio of gross public debt to GDP to rise from 36 per cent in 1990/91 to 56 per cent in 1997/98. Hardly a stable ratio.
Economic Adviser to the Shadow Chancellor
House of Commons