Tuesday, December 06, 2005

Golden Rules

Yesterday, Gordo took a swipe at the "Growth Rule", the third Golden Rule. We know it from the Tory leadership contest- a formal rule to limit the growth of public spending below the growth of the economy, in order to clear the way for tax cuts. Naturally, he falsely suggested it would involve massive cuts in public services.

Today, the Reform thinktank- whose proposal it originally was- gives us the actual facts:

"Reform’s “Growth Rule” would not lead to cuts in public spending, but affordable spending rises that would also make room for tax cuts.

If departmental spending in real terms was increased by two percentage points below the trend rate of growth of the economy – in line with Reform’s “Growth Rule” – by the end of the Parliament, total public spending would rise by £24.6 billion in real terms.

That does represent a slower increase than the Government’s plans, with the difference being £26 billion by 2009-10. This saving could either be used to reduce borrowing, or to cut taxes. If the money was used entirely to fund tax cuts, £26 billion would allow the basic rate of income tax to be reduced from 22 per cent to 17 per cent, saving a taxpayer on average earnings around £750 a year."

We're convinced by the Growth Rule. Of course we can debate its calibration- in David Cameron's terms how exactly we are going to "share the proceeds of growth". And of course it must be combined with real reform in public services.

But such a rule puts the emphasis on reducing the share of national income going into public expenditure, and provides the essential discipline to operate efficiently within what we can sensibly afford.

Throughout history, politicians unsurprisingly have always preferred unfettered discretionary power to being limited by rules. But history tells us that political discretion and our money is never, ever a good mix.

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