Magazine article Public Finance

Commanding Depths

Magazine article Public Finance

Commanding Depths

Article excerpt

The cherished fiscal rules lie in tatters as the government embarks on a borrowing bonanza aimed at stabilising the turmoil in the UK's banking sector.

Alistair Darlings announcement of a £500bn rescue plan, including £50bn to part-nationalise up to eight banks, has destroyed the fiscal framework that has been at the core of New Labours economic philosophy since 1997.

It could have been a humiliation for the chancellor and, more damagingly, for the prime minister. But, in the end, all the main political parties accepted that there was no alternative. It was bailout or bust.

As Darling stressed in his statement to Parliament, these are exceptional circumstances and the borrowing is a temporary expedient.

However, borrowing is not a painless panacea. And we are talking about huge sums. The money involved, including Northern Rock, Bradford & Bingley and this weeks commitments, could bust the sustainable investment rule by len percentage points.

Eventually, the money will have to be paid back and somebody will suffer. That somebody will either be the taxpayer or the public services, or, probably, both.

Local authorities are already struggling with a tight financial settlement, rising costs and falling income as the recession looms. …

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