November 21, 2005 | posted by Michael Baxter in Uncategorized |

The Sunday papers engaged in their weekly round of Brown bashing yesterday, with much attention paid to the latest report from the Centre for Economics and Business Research, which has found that the UK has fallen to 19th place in the EU league for growth with only France, Poland, Italy, the Netherlands, Finland and Belgium performing worse.

And yet Gordon Brown can now say to his distracters: “told you so ” as the latest data from the Office of National Statistics reveals a big improvement in the UK’s public finances.

Mr Brown does things differently from other EU chancellors. Whereas the EU stability pact likes to limit governments’ borrowing to 3% of GDP, our next Prime Minister says that what matters is borrowing over the course of an economic cycle. He says borrowing is okay, providing we pay it back in the good years. To put it another way, our Gordon has come up with his golden rule. Borrowing on current account (that excludes capital spending on items such as schools, hospitals, new roads and controversially, road repairs) must balance over the course of an economic cycle.

For some time now it has felt as if every economic analyst and their dog has been predicting the breaking of the golden rule. “Taxes must rise,” they say, to fund the growing level of government borrowing, which in turn will doom the UK’s economic performance to the slow lane for many more years to come.

Some even went as far as to say there are two chancellors, the Dr Prudence of early years of his time at number 11, and the Mr Profligate since. But for his part our beloved chancellor has denied it, suggesting he knew things the rest were ignorant of.

In truth it will take many years before it is possible to objectively determine whether he was right or wrong, but the latest round belongs to Gordon.

Current account public expenditure posted a £4.1bn surplus in October. To put this in context this time last year the Office of National Statistics announced a £0.4bn surplus on current account for the month.

As for so far this financial year, government’s borrowing has been £10.8bn so far. That’s not too good, but much better than last year’s £18.4bn. It is better than the figures from the year before too.

Mr Brown is good with statistics. If his interpretation on official figures is to be believed, then he is always right.

Others will argue that this time he has gone too far, and that the only way he was able to avoid breaking his golden rule was by playing with numbers.

But actually, in broad terms, the latest data would suggest the UK is along the right lines. Public borrowing, at a time when it appears to be going out of control in the US and in many eurozone economies is still, more or less, under control.

The golden rule is not sacrosanct. To break it by a small margin will not bring calamity. Most of our economic partners are a long way short of being able to balance their books over the course of an economic cycle. To argue that public finances are in disarray, as some do, just because by some definitions it could be suggested that we will break the golden rule - is absurd.

Too much attention is paid to this rule. The trouble is though that Mr Brown is, in this sense, the architect of his own misfortune. He is the one who keeps talking about the rule, he is the one who keeps changing definitions to prove his is right. It’s no surprise then, that others are looking to prove he is wrong. He set the rule, it’s only right he should be measured by his ability to keep to it.

Editors note: Gordon’s first high profile change to his golden rule came when it was announced that the rule requires government borrowing to balance over the course of an economic cycle as a percentage of GDP, not in monetary terms. Significant because GDP has grown each year and the deficits of recent years have taken up a smaller proportion of GDP as a similar sized surplus of a few years ago. Then the Office of National Statistics announced road repairs had wrongly been classified as a current account item. This change drastically improved finances, and more recently Mr Brown changed the date at which this economic cycle is likely to end. Had he not done so, then despite all the other changes he would have broken the golden rule.