A Roadmap for Economic Stability

The Coalition’s programme of budget cuts and tax rises will in due course lead to the most profound change in the structure of the economy and public services in the UK. What the government’s policy of fiscal retrenchment has as yet only partially brought to the fore is the question of how to regulate UK fiscal policy in a way that builds on the basic ideas behind Gordon Brown’s Golden Rule, while avoiding the mistakes inherent in that policy. 

While this may sound like the sort of argument that one may expect from the likes of the Adam Smith Institute or Policy Exchange, this in fact an attempt present a centre-left prospective on how to achieve new guidelines on the governance of fiscal policy alongside a commitment to a key strategic role for the state in the economy. To develop such a policy would bring together two previously competing beliefs in the role of the state on the one hand and fiscal rectitude on the other.

So if we are to take these two previous competing ideas together as one new programme that the centre-left can take together and present to the UK electorate, to on the one had demonstrate recognition of their widely perceived and in some quarters actual fiscal mismanagement during the their time in government while on the other actively pursuing an active state policy in a sustainable and lasting way. So the direction that we need to take has to be based around a clear set of 4 policy areas. The first is the introduction a deficit target of 3%, the second the limit put into place the national debt, the third the placing of all government liabilities on the national accounts and fourth and finally all future government borrowing would only be permitted to fund investment.  To avoid the failure of the Golden Rule this new policy would have to be constructed as a legislative framework instead of a loose policy statement.

The benefits of adopting a legislative framework for UK fiscal policy would be two-fold; first of all it would ensure that the government of the day adheres to the new fiscal policy, with punishments in place in the form of a censure of the government alongside financial penalties similar to the type currently in place in the European Union. The second benefit of adopting such a framework would be to familiarise the process of fiscal governance, which could be achieved by using the new Office of Budget Responsibility as a regulator of the new fiscal framework and the one which had the ability to use the powers of punishment as briefly touched on above.

The introduction of fiscal guidelines bring fiscal competence to the centre-left, allow their belief in a bigger role for the state in running the economy to be presented in credible terms and would finally demonstrate their ability to not only learn from previous policy mistakes carried out in the previous labour government, but also to operate a future fiscal policy that recognises that fact. This is how the centre-left if it is serious about first of all regaining economic competence and secondly presenting to the electorate in 2015 a credible economic programme that the electorate is able to believe will bring together right and left in a successful balance.