Top accountants challenge Labour borrowing targets

A central plank of Labour’s economic policy is doomed to failure if the party wins the next election, accountants have warned.

Labour’s plan to abide by the Golden Rule – aggregate public borrowing over the medium-term must not exceed net public sector investment – will fail unless taxes are raised, claims Chantrey Vellacott’s head of economics Maurice Fitzpatrick.

And Paul Droop, chief economist at Ernst & Young’s independent economic forum, the ITEM Club, said the Golden Rule, in essence balancing the books, would be difficult given the current state of the national economy.

Fitzpatrick explained that the Treasury’s latest economic forecast infers net public borrowing of u40bn over the four years to 2001, against NPI of #28bn. The figure assumes a real terms increase in core public spending of just 0.5% a year – an ‘unprecedented’ target, according to Fitzpatrick.

City estimates for public borrowing over the same period are worse, rising to at least #55bn.

Fitzpatrick said: ‘The Golden Rule is a worthwhile target contrasting favourably with the profligate borrowing of the current Government. But, in practice, it’s going to be hard for Labour to achieve it without raising taxes. If Labour are setting this target, they have to explain how they will achieve it.’

Droop explained: ‘This isn’t an issue about who is in power. Both parties would have to spend less and raise more to reduce borrowing to zero.’

He added that a study by the ITEM Club, based on the independent Treasury economic model, suggests that Labour would present no danger to the continued growth of the UK economy.

Droop added: ‘The possibility of a change in government is not likely to change the outlook for the UK economy noticeably over the next couple of years.’