The fiscal framework

29. In its Code for Fiscal Stability, published in November 1998, the Government set out the principles by which it would conduct fiscal policy. These were:

a. transparency in the setting of fiscal policy objectives, the implementation of fiscal policy and in the publication of the public accounts;

b. stability in the fiscal policy-making process and in the way fiscal policy impacts on the economy;

c. responsibility in the management of the public finances;

d. fairness, including between generations; and

e. efficiency in the design and implementation of fiscal policy and in managing both sides of the public sector balance sheet.[118]

The Government has two fiscal policy objectives, which are:

over the medium term, to ensure sound public finances and that spending and taxation impact fairly within and between generations; and

over the short term, to support monetary policy and, in particular, to allow the automatic stabilisers to help smooth the path of the economy.[119]

To achieve these two objectives, the Government has established two fiscal rules. These are:

the golden rule: over the economic cycle, the Government will borrow only to invest and not to fund current spending; and

the sustainable investment rule: public sector net debt as a proportion of GDP will be held over the economic cycle at a stable and prudent level. Other things being equal, net debt will be maintained below 40% of GDP over the economic cycle.[120]

It is, in part, against these self-imposed rules that we have examined the overall state of the public finances.

The state of the public finances

30. At the time of the last year's Pre-Budget Report, the Treasury forecast that the current budget would move into surplus in 2009-10.[121] In our Report arising from that document, we noted the risks to that forecast:

The weaker budget balances now forecast for 2007-08 and 2008-09 in part reflect the expected impact of recent financial market turbulence on broader economic growth and, therefore, receipts. The expected rebound in the budget balance from 2008-09 onwards is partly dependent upon a timely recovery in the financial sector such that economic growth quickly returns to trend.[122]

This year's Budget forecast a deterioration in the public finances for the year 2008-09. Table 2 illustrates the performance of the public finances and the Treasury's changing forecasts since the 2003 Budget.

Sources: Budgets 2003-2008 Table C2, PBRs 2003-2007 Table B2

Cells shaded grey show the year in which a current budget surplus (or balanced budget) was first forecast in each Budget and PBR document. Figures in italics are outturns, all other figures are forecasts (for the year in which the document was published) or projections.

As Table 2 shows, the current budget is not now expected to move into surplus until 2010-11, a year later than expected at the time of the 2007 Pre-Budget Report. However, Table 2 also illustrates that the Government is now expecting the budget balance outturn in 2007-08 to be slightly better than was forecast at the time of last year's Pre-Budget Report. Mr Robert Chote, Director of the Institute for Fiscal Studies, explained the decisions that had been made by the Government about how it was to cope with the forecast deterioration in the public finances:

The Treasury has effectively admitted to about a £7.5 billion permanent deterioration in the outlook for the public finances which clearly reflects in large part the movements in equity prices since the Pre-Budget Report, expectations that were described to be a sluggish or flat house price growth, associated conditions in the property market, the mix of consumer spend, consumer spending being weak relative to GDP overall, and more consumer spending going on things on which less VAT is paid. Confronted with that £7.5 billion gap they have essentially said, 'We are going to raise £2.5 billion of taxes looking five years out' and they have also tightened the assumed spending squeeze in Spending Review 2009 and are borrowing a bit more. So they have dealt with some of it by measures, some of it by assumption and some of it just by borrowing more. History suggests … there are very big variations either side of the likely path but so far it has been seven budgets running in which the errors have been in the same direction.[123]

31. Mr Ramsden explained that the change in the Treasury's forecast was necessary in the light of the prolonged effects of the financial market turbulence. He told us that:

Since Budget 2007 and since the PBR … the credit shock that has hit the global economy and the UK economy has intensified. We are in a position where we can allow the public finances to be flexible to support the economy. That explains why we have significant increases in borrowing over the early years of the forecast period and why the year in which we go back into surplus goes back a year.[124]

As we noted in our Report on the 2007 Pre-Budget Report, the weakening in the forecast for the public finances came about from the impact of the turmoil in financial markets on the forecasts for economic growth, and thus tax receipts.[125] As we observed earlier,[126] Treasury forecasts for economic growth remain above those of many outside forecasters, and there are considerable downside risks to those forecasts. Ms Rosewell believed that the forecasts were deliberately over-optimistic so that the Treasury's forecasts for the fiscal position would not be even worse:

I think that it is quite odd that the forecasts should be as optimistic as they are, particularly as the consensus itself is continuing to fall, and indeed is likely to fall still further in the light of most recent events. Of course if there is weaker growth then there are weaker tax revenues and that makes it even more difficult to sustain the public finances, which are already running £6 billion ahead of where they were estimated to be even six months ago.[127]

However, Mr Ramsden defended the Treasury's growth forecasts and how they were used for fiscal forecasting:

We have attempted to put the current position in a longer-term context, looking at the performance of the UK economy and how it has dealt with past shocks, it is what we have described as its resilience. Where that leaves us is with a forecast, which I think is a very realistic forecast, of growth of 1.75 to 2.25% this year and growth of 2.25 to 2.75% in 2009. We produce these forecasts to frame our fiscal judgments and our assessment of the fiscal position and, as you know, to do that we take the bottom end of the range of our forecasts to drive our fiscal forecast. Our fiscal forecast is running off a forecast for growth in 2008 which is 1.75%, which is actually in line with the independent average for 2008. In 2009 our forecast is running off a bottom end of the range which is 2.25%.[128]

There has been a further weakening of the Treasury's forecasts of the current budget balance from 2008-09 onwards since last year and the latest forecasts for the fiscal position are based on forecasts for economic growth that are subject to considerable downside risks.

The golden rule

32. Despite the weakening of the forecasts for the public finances from 2008-09 onwards, the Treasury stated in this year's Budget that it was on course to meet the golden rule—that, over the economic cycle, the Government will borrow only to invest and not to fund current spending:

Progress against the golden rule is measured by the average annual surplus on the current budget as a percentage of GDP since the cycle began. On this basis, and on the basis of cautious assumptions, the Government has met the golden rule for the cycle that began in 1997-98.[129]

However, to assess whether the Government has met the golden rule requires an assessment of when the economic cycle began and ended. The Government stated in this year's Budget that, while 1997-98 represented the beginning of a new cycle and "the latest National Accounts data and the Treasury's trend output assumptions imply that output passed through trend in the second half of 2006", the Treasury's overall conclusion was that "it is too soon to assess whether or not the economic cycle has ended".[130] In explaining why it had been difficult to ascertain the end of the cycle, the Treasury observed that "The current uncertainty over dating of the cycle is expected partly to recede once the ONS National Accounts modernisation programme secures improvements to the quality of the data for recent years".[131] We have commented previously on the problems inherent in trying to use a rule dependent upon the measurement of the economic cycle. In our Report on the 2007 Budget, we stated:

The reduction in amplitude of the economic cycles in the past decade or so and the difficulties of measuring the output gap have made the dating of the economic cycle and application of the golden rule a particularly difficult process. We reiterate our recommendation that the Government review the golden rule and consider how to make it more forward-looking and its application less dependent on the dating of the economic cycle.[132]

33. Despite being unable conclusively to determine when the economic cycle had ended, this year's Budget stated that:

The projections show that the deficit on the current budget remains significantly below the 1.1% deficit recorded in 2005-06 and moves into surplus in 2010-11, with the surplus rising to 1.0% of GDP by 2012-13. At this early stage, and based on cautious assumptions, the Government is therefore on course to meet the golden rule in the next economic cycle. The cyclically-adjusted surplus, which allows a clearer view of underlying or structural trends in the public finances by removing the estimated effects of the economic cycle, shows a rising surplus from 2009-10, as the economy returns to trend.[133]

When we asked Treasury officials how they could determine whether they would meet the golden rule in the next economic cycle, when they did not know when the current one had ended, Mr Ramsden first told us that:

We have an average surplus over the whole period from 1997-98, which was the start of the last cycle and what we say is that we are, over the forecast period, meeting the golden rule. We do not say over the next cycle.[134]

He then explained that the key part of the sentence in this year's Budget was the phrase that the Government was on course to meet the golden rule in the next economic cycle.[135]

34. Mr Chote suggested that the latest delay by the Government in fixing the end of the cycle had not aided the credibility of the golden rule, telling us that "There is no harm in saying again that this approach on a fixed end of the cycle seems to be ever more absurd with every passing year".[136] However, Mr Ramsden strongly defended the Treasury's ability to determine the end of the cycle, telling us that:

I do not think it is that we are incapable. It is just that we are in the middle of this period of real uncertainty. There is also uncertainty over the evolution of the data. We are very much looking forward to when the ONS produce their blue book national accounts figures, as they are planning to this summer, which we think will give us a clearer idea of what has been happening to growth. In a sense because we are still over the forecast period meeting the Golden Rule I do not think it is making it any more difficult to assess the fiscal framework and frame a fiscal judgment.[137]

The Chancellor of the Exchequer also defended the use of the economic cycle as part of the golden rule, despite the problems in determining an end date for the last economic cycle. He told us that:

I certainly do not see any difficulty, far from it, of having rules that span a cycle because the whole point of doing that is to allow for the fact that in any cycle there will be some years that the economy will be growing above its trend road to growth and other times it will be growing below it. It is a perfectly stateable case to say that you balance the books every single year but I think that would lead to some very disjointed planning. As I said earlier, … if you had had another fiscal rule which said you cannot borrow when the economy is growing above trend that would have resulted in quite a substantial cutback in public investment. So I think looking across the cycle is fine but there are always going to be arguments—and I know that this is an argument that many of the groups that come and see you have—as to the difficulty in defining when the cycle came to an end, and I can appreciate that you could have an interesting debate on the matter, but I think the principle is a sound one.[138]

In our previous recommendations in our Reports on the 2007 Budget and 2007 Pre-Budget Report, we argued that the Government should review the golden rule such that it becomes more forward-looking and less dependent upon the dating of the economic cycle. The current inability of the Treasury to date the end of the economic cycle works against the positive attributes of a fiscal rule founded on judgements about economic cycles. We continue to believe that the golden rule should be more forward-looking, but, even on the Treasury's own current formulation, it appears to us to be premature for the Treasury to state that it is "on course" to meet the golden rule in the next economic cycle, given the lack of an end date for the previous economic cycle.

The sustainable investment rule

35. This year's Budget sets out the Government's position that it is on track over the forecast horizon to meet the sustainable investment rule—that public sector net debt as a proportion of GDP will be held over the economic cycle at a stable and prudent level and that, other things being equal, net debt will be maintained below 40% of GDP over the economic cycle:

Public sector net debt remains below 40% of GDP throughout the projection period and starts to decline by 2012-13, reaching 39.3% of GDP. Therefore the Government meets its sustainable investment rule while continuing to fund increased long-term capital investment in public services. The projections for core debt, which exclude the estimated impact of the economic cycle, remain below 39% of GDP. This is consistent with the fiscal rules, and with the key objective of intergenerational fairness that underpins the fiscal framework.[139]

Table 3 illustrates how forecasts of public sector net debt have changed since last year's Budget.

Sources: Budget 2007, p 278, Table C5; Pre-Budget Report 2007, p 165, Table B6; Budget 2008, p 184, Table C5

Figures in italics are outturns, all other figures are forecasts (for the year in which the document was published) or projections.

36. As Table 3 shows, the forecasts as presented in the 2008 Budget showed a further reduction in the margin by which the Government expects it will meet the sustainable investment rule over the next few years. Accordingly, by 2010-11, the latest Treasury forecasts suggest that there will be headroom of only 0.2 percentage points, which Mr Chote suggested equated to £2.8 billion.[140] Such a margin appears small when, as Mr Chote noted, "the average forecasting error for the budget deficit one year ahead is about [£]13-14 billion".[141] As such, he suggested that there was a fifty-fifty chance that the Government would breach the sustainable investment rule over the forecast period.[142] However, Treasury officials were reluctant to suggest how likely it was that the Government would breach the rule, with Mr Ramsden telling us that "We do not do our forecasts in that way".[143] He also explained that the Treasury saw the sustainable investment rule as "a strict rule".[144] However, he defended the reduction in the margin with which the sustainable investment rule would be met, explaining that:

It is very much because of the present uncertainties over the economy and in thinking about the operation and the purpose of the fiscal rules to support monetary policy and stabilise the economy that we are seeing increased borrowing and actually that the margin on the sustainable investment rule has gone down from the kind of levels we had at PBR time. Since the alternative would have been to tighten policy during a period when the economy is forecast to operate below trend, looking at the way the fiscal framework gives flexibility, we thought it was the right thing to do to allow current borrowing to increase and to continue to borrow to invest. That is why we have got closer to the sustainable investment rule margin.[145]

The Chancellor of the Exchequer rejected the notion that, given the tight margin in the forecasts for the Government meeting the sustainable investment rule, the sustainable investment rule was no longer achieving its aim.[146] He considered that "the sustainable investment rule has a lot of merit because what it says is that it allows you to maintain public investment but it says that it should be kept at a prudent level, which we say is 40%; but it does allow you, even when there are times when the economy is not growing as strongly as it has been, that you can maintain your public investment, which I think is very important".[147] The Government has forecast that it will meet the sustainable investment rule over the period up to 2012-13. However, the margin by which it is now forecasting that it will meet the rule is extremely tight, especially considering the uncertainty surrounding the overall economic situation.

INTERNATIONAL FINANCIAL REPORTING STANDARDS

37. The Government's performance against the sustainable investment rule is measured using Public Sector Net Debt (PSND) as a proportion of Gross Domestic Product. The calculation of PSND may be affected by accounting changes. The Government announced in last year's Budget that it would introduce International Financial Reporting Standards (IFRS) for use in central government accounts from 2008-09.[148] However, in this year's Budget, the Treasury announced a postponement of the implementation of IFRS in central government accounts to 2009-10.[149] We explore the reasons for this postponement and its accounting effects later.[150] In this section we are concerned with its effects on the measurement of PSND and thus of the Sustainable Investment Rule. As part of the implementation of IFRS, the accounting treatment of Private Finance Initiatives and Public-Private Partnership agreements is likely to change, leading to the potential for some of these projects to be moved to 'on-balance sheet'. When we discussed with the Office of National Statistics how the implementation of IFRS would impact on the measurement of PSND, they told us that:

IFRS introduces new standards for government accounts. We recognise that there is an issue here as to whether it would change the approach that we have been adopting to the public sector finances. The short answer to the question about whether it will make a difference is that we do not know. It will depend on precisely how the new IFRS standards are applied in the public sector and we do not yet know whether it will continue to produce similar results to the results you would get from applying national accounts. There is an open question there going forward but it is certainly part of our work programme to examine that question. That is where we are at. We are using existing government accounting standards to estimate public sector net debt at the moment but we will be examining the new standards to see whether we need to change our approach going forward.[151]

38. Others have argued that the impact of such a change on the measurement of PSND could be quite large, with Mr Chote suggesting that "The maximum you end up with is something like [£]30 [billion] if everything goes on that is currently off".[152] If the implementation of IFRS does lead to many more assets being treated as 'on balance sheet' and that flows into the classification of PSND, then the limit under the sustainable investment rule as currently defined is almost certain to be breached. Mr Chote was critical of the Treasury's lack of early notice of how it would deal with a definitional change affecting the national accounts:

The Treasury is still sticking with this, 'We are below 40%, what is the issue?' There is no discussion of, 'If for a variety of reasons that might not be the case, what is the sensible approach? Are we going to change the rules? Do we think we have breached this but we just explain the circumstances.' The worst thing you can do is basically say, 'There is no problem. There is no problem. There is no problem' and then just move the goalposts at exactly the point at which you would cross it, which was what happened with the Golden Rule and it looks like they are setting themselves up for exactly the same thing with the sustainable investment rule.[153]

39. Mr Ken Wild, a member of the Financial Reporting Advisory Board, argued that a rise in the recorded level of PSND arising from a reclassification of liabilities should lead to a change in the interpretation of the sustainable investment rule, rather than policy changes to reduce PSND:

I think better information should not affect the rule. The rule is there to achieve something. The rule is there to achieve stability and it is based on information. If you get better information and better understanding you can say, 'Ah, I now understand better and the implications for what I was trying to do in achieving stability are this', but you should not have the rule distort the decision against the facts. If you get better understanding of the facts you ought to be able to take better decisions, so you should not let the rule drive it. If the rule has been written on the basis that the facts will be presented in a particular way and you present the facts in a different way you will need to adjust the rule to achieve the same effect, but if you are improving the information it cannot essentially undermine the quality of the rule; it can just alter the way it is defined.[154]

The Chancellor of the Exchequer told us that the Treasury's response to a breach of the sustainable investment rule from an IFRS related breach of the rules was something he was "still reflecting upon".[155] It seems highly likely that, following the move to International Financial Reporting Standards for central government, the sustainable investment rule as currently defined and interpreted will be breached in 2009-10 as a result of the reclassification of PFI projects. As such, the delay announced in Budget 2008 in the implementation of International Financial Reporting Standards gives the Government a chance to announce in advance whether and how it proposes to revise the sustainable investment rule in the light of the implementation of International Financial Reporting Standards. We recommend that the Government publish in the 2008 Pre-Budget Report any proposed changes to the sustainable investment rule and its interpretation arising from classification changes resulting from International Financial Reporting Standards.

NORTHERN ROCK

40. On 7 February 2008, the ONS determined that, as a result of the nature of the support that the Bank of England had provided Northern Rock, Northern Rock would be classified as a Public Financial Corporation when compiling the National Accounts and that this reclassification would be backdated to 9 October 2007.[156] The ONS explained that "The decision is based on a judgement that the public sector has the power to control Northern Rock plc's general corporate policy through clauses in the legal documents defining the arrangements" of the Bank of England's loans to Northern Rock.[157] As a result of this reclassification, Northern Rock's liabilities, minus its liquid assets, would be counted as part of PSND.[158] In evidence to us, Mr Kellaway, Head of Classifications and Adviser, Public Sector Accounts at the Office of National Statistics, outlined the potential effects this would have on PSND as a percentage of GDP, telling us:

At the time that we gave this indicative figure, which was at December, it [the inclusion of Northern Rock] would have added 6.7% and so that would have taken it to the range of 43%, 44%.[159]

Northern Rock's inclusion in the PSND figures would therefore have meant that the Government would have breached the existing ceiling set on the sustainable investment rule for the economic cycle that began in 1997-98.

41. The Government announced in this year's Budget that it had decided that the liabilities associated with Northern Rock would not be counted as part of PSND when calculating whether the Government had met the sustainable investment rule. The Government provided the following reasoning for its decision:

The purpose of the sustainable investment rule, to protect intergenerational fairness and ensure sound public finances, provides the context for measurement decisions. The impact of Northern Rock on public sector net debt provides a good example. Northern Rock is temporarily in public ownership and its liabilities are fully backed by other financial assets held by the company, and therefore its impact on PSND does not reflect future calls on the taxpayer or affect sustainability. PSND does not take account of temporary ownership or net off all financial assets. As the sustainable investment rule aims to capture the burden of debt that will fall on future taxpayers, it would not be appropriate to include the liabilities of Northern Rock in the measure of performance against the rule. The Code for fiscal stability provides for such circumstances. The Government remains committed to best practice fiscal reporting, and to improving the assessment of fairness and sustainability where further opportunities arise, maintaining the integrity of the constraints set by the fiscal framework. [160]

Dr Weale broadly agreed with the Government's position on the inclusion of Northern Rock, but felt that its simple exclusion from the figures was wrong:

I must say what I would have done is to say the 40% is a target, the nature of the world is that things happen that you do not expect and we have exceeded the target, but on this occasion we think we do not need to do anything about it because crossing the target has come about because we have taken over Northern Rock and unless it appears that the taxpayer is going to suffer financial loss as a consequence we can simply wait for Northern Rock to be taken off the balance sheet again. Presentationally it has been very bad but the conclusion that they have come to is correct.[161]

Treasury officials were confident that they had dealt with Northern Rock's exclusion from the sustainable investment rule correctly. Mr Ramsden told us that "What we are always trying to do is to ensure the credibility of our fiscal framework and the fiscal framework through the Code of Conduct allows us … to approach considerations like Northern Rock in the way that we have".[162] The Chancellor of the Exchequer was more strident in his criticism of any attempt to include Northern Rock in the sustainable investment rule. He told us that to do so would be "absolutely bonkers" because "it would mean you would have to slash large amounts of public expenditure to accommodate what is a temporary arrangement, and I cannot see the sense of that and I do not know if any sensible commentator is arguing that we should".[163] We accept that Northern Rock's inclusion within calculations of Public Sector Net Debt should not influence decision-making under the fiscal framework. It is nevertheless important that the Government reports transparently on the effects of Northern Rock in its forecasts of Public Sector Net Debt as a proportion of GDP.

The relationship between monetary policy and fiscal policy

42. The 2008 Budget stated that:

The Government uses cautious NAO audited assumptions, including a cautious view of trend growth, to build a safety margin in the public finances against unexpected events. Combined with the decision to consolidate the public finances when the economy was above trend, this has resulted in low debt. As a result, this has allowed the Government to safeguard the increase in investment in priority public services, to allow the automatic stabilisers to work fully during a period of global economic uncertainty, and to meet in full the UK's international commitments, while continuing to meet the fiscal rules.[164]

As we have seen, this year's Budget reported a further weakening since the 2007 Pre-Budget Report in the forecasts for the public finances from 2008-09 onwards, and the margin by which the Government forecasts that it will meet the sustainable investment rule is very slim. Dr Weale thought that there was little room at the present juncture for the Government to support monetary policy through fiscal measures, given its own policy rules. He told us that:

If you take the view that is what you should be doing with fiscal policy when the country is in difficulties then there [is] quite a lot of scope because, after all, the limits that the Government set on its borrowing are just arbitrary. On the other hand, if the Government wanted to maintain, I suppose, the letter as they define it of the fiscal rules—because I think they have given up on the spirit of them— … then … I do not think there was room to support monetary policy.[165]

Ms Rosewell agreed, stating that:

Clearly the Government could go out and borrow; there is nothing to stop it going out into the market, although it might have to pay a bit more. If you ask for more money you might have to pay a bit more, but it is a triple-A rated institution and it can go out and raise funds. Indeed, there are increases in borrowing put into this. The self-imposed constraints are clearly very serious indeed.[166]

Mr Chote pointed out that there was an additional constraint on how far the Government could use fiscal policy to stimulate the economy, namely the Bank of England. He explained that:

I think one of the difficulties with the way the current framework is set up is that at the moment with having the Bank of England given an inflation target, it is the Bank of England that is the second mover and essentially decides how much aggregate spending it is safe to have in the economy. If you were to do something much more expansionary on fiscal policy and the Bank thought that was over-egging it, the sort of discussions we have had before, then they would offset that, and similarly if they went in the other direction. In a sense, the Treasury is only able to affect the policy mix. The Bank of England decides how much overall expansion or contraction is appropriate and, as you discussed earlier, at the moment they are caught between the desire to shallow out the downturn and at the same time not wishing to see the short-term inflation boost get into wage constraints so I think there is a broader issue about the way in which responsibilities are given leaving aside the fiscal rules.[167]

43. Treasury officials defended the Government's position, saying that the increased borrowing in the Budget had been to support monetary policy. They told us that:

It is very much because of the present uncertainties over the economy and in thinking about the operation and the purpose of the fiscal rules to support monetary policy and stabilise the economy that we are seeing increased borrowing and actually that the margin on the sustainable investment rule has gone down from the kind of levels we had at [Pre-Budget Report] time. Since the alternative would have been to tighten policy during a period when the economy is forecast to operate below trend, looking at the way the fiscal framework gives flexibility, we thought it was the right thing to do to allow current borrowing to increase and to continue to borrow to invest.[168]

The Chancellor of the Exchequer dismissed the idea that the Government had not been able to support monetary policy, arguing that "The important thing is to have the scope to do these things and by getting borrowing debt down to a level that is much lower than we had in the past we do have that room for manoeuvre that we would not have had in the past; and, of course, as you know, the Bank of England has been able to reduce rates in December and then again in February".[169] The Chancellor of the Exchequer also pointed out that the UK's levels of public debt were "lower than most of our competitors, [and] they compare well internationally".[170] On the question of whether there should have been further consolidation of the public finances during the previous years of stronger economic growth, the Chancellor of the Exchequer remarked:

The other thing I would say—and I know that many people, not so much the commentators but inside this House are now saying—'You should have cut back at times when the economy was growing above trend'. Firstly, I do not actually remember them saying that at the time, and indeed many of them were actually calling for more spending. Also, if we had actually not borrowed when the economy was growing above trend then we would have had to cut back quite substantially into some of the investment that we have been making in our long term infrastructure, and I think that would have been to repeat all the mistakes of successive governments—and I am not talking about the last one but other governments of different political colours over the last 30 or 40 years.[171]

As we have noted already, the forecasts for the state of the public finances show further deterioration from 2008-09 onwards, and there are significant downside risks to the forecasts for economic growth. Should those risks crystallise, the Government would have extremely limited scope, under the fiscal rules as currently defined, to take further fiscal measures to support monetary policy. We expect to examine the role of the golden rule and of the sustainable investment rule in more detail in our inquiry into the 2008 Pre-Budget Report.

119   Budget 2008, p 23, para 2.32 Back

120   Ibid., p 23, para 2.33 Back

121   Pre-Budget Report and Comprehensive Spending Review 2007, p 159, para B.8 Back

122   HC (2007-08) 54-I, para 23 Back

123   Q 42 Back

124   Q 153 Back

125   HC (2007-08) 54-I, para 28 Back

126   See paragraph 11. Back

127   Q 2 Back

128   Q 122 Back

129   Budget 2008, p 177, para C.12 Back

130   Ibid., p 176, para C.11 Back

131   Ibid., pp 153-154, para B.46 Back

132   Treasury Committee, Fifth Report of Session 2006-07, The 2007 Budget, HC 389-I, para 31 Back

133   Budget 2008, p 177, para C.13 Back

134   Q 167 Back

135   Qq 316-317 Back

136   Q 50 Back

137   Q 168 Back

138   Q 314 Back

139   Budget 2008, pp 177-178 , para C.14 Back

140   Q 44 Back

141   Ibid. Back

142   Ibid. Back

143   Q 170 Back

144   Q 169 Back

145   Q 169 Back

146   Q 318 Back

147   Ibid. Back

148   HM Treasury, Budget 2007, p 154, para 6.59 Back

149   Budget 2008, p 202, para C.103 Back

150   See paragraphs 63-66. Back

151   HC (2007-08) 397-i, Q 48 Back

152   Q 49 Back

153   Ibid. Back

154   HC (2007-08) 397-i, Q 43 Back

155   Q 320 Back

156   National Statistics, Northern Rock Plc, 7 February 2008, p 2, para 1.2 Back

157   Ibid., p 2, para 1.3 Back

158   Ibid., p 2, para 1.6 Back

159   HC (2007-08) 397-i, Q 56 Back

160   Budget 2008, p 28, Box 2.6 Back

161   Q 46 Back

162   Q 175 Back

163   Q 322 Back

164   Budget 2008, p 181, para C.34 Back

165   Q 38 Back

166   Q 39 Back

167   Q 40 Back

168   Q 169 Back

169   Q 303 Back

170   Q 299 Back

171   Q 299 Back