UK will not tackle excessive debt
Chancellor Brown is breaking the rules he set for himself when prudence is ditched for unfettered spending.
If, as reported when Euromoney was going to press at the end of September, the European Commission was about to launch its Excessive Deficit Procedure (EDP) against the UK, it will demonstrate how the country's public deficit problems cannot be disguised for much longer. According to Bank of America research, UK borrowing in the first five months of the 2005/06 financial year was £20.8 billion, higher than in the same period in any of the previous three years.
Because it is outside the eurozone, the UK will not face financial sanctions – for those states that do not use the single currency, EDP is a monitoring rather than an enforcement tool. And if the UK's recent record is anything to go by, it appears that the simplest way of dealing with inconvenient fiscal rules is to ignore them.
The UK's Golden Rule prohibits borrowing to fund current spending, as distinct from investment, by saying that the UK's budget should balance over the course of the economic cycle. It is almost certainly being violated.
The Sustainable Investment Rule commits the UK government to keeping national debt below 40% of GDP. The Golden Rule has attracted more headlines, but breaking it has a knock-on effect, putting extra pressure on the Sustainable Investment Rule.