Magazine article Public Finance

A Digest from the Web

Magazine article Public Finance

A Digest from the Web

Article excerpt

respond appropriately when faced with shocks, the same is not true of the debt target. Forcing debt to fall between two fixed dates does not ensure long-run sustainability, since it does not constrain the government from allowing debt to rise inappropriately before or after those dates. Also, compliance could require the government to implement bad fiscal policies, since there are circumstances under which it would be more desirable for public sector debt to rise rather than fall over a 12 -month period.

Therefore, regardless of whether or not the OBR's next forecast suggests that debt is more likely to rise than fall in 2015/16, the chancellor should drop the supplementary target in his Autumn Statement. Since the fiscal mandate on its own does not limit the liabilities the government accumulates, it would not be sufficient to ensure long-term fiscal sustainability.

Therefore a replacement for the supplementary target would be needed. While it is important to ensure that other market players retain belief in the government's commitment to fiscal sustainability, getting such a target right, and the timescale in which it should be achieved, is more important than having it in place straight away. It might also be possible to get a broad political consensus over these issues.

Rather than rushing to announce a replacement for the debt target in this year's Autumn Statement, the chancellor should instead announce a consultation on the design of a new target to conclude in time for next year's Budget.

Should the chancellor wish to boost further the credibility of the government's fiscal consolidation plan, he should commit to holding a Spending Review before the end of next year to clarify how the spending cuts pencilled in beyond March 2015 are intended to be achieved. …

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