Breach of fiscal rules regrettable but inevitable

Commenting on authoritative reports that the Treasury will be forced to breach its fiscal rules, David Kern, Economic Adviser to the British Chambers of Commerce, said:

“The news that the Treasury will most likely alter its fiscal rules later in the year is not surprising. We have previously warned that given the expected sharp slowdown in UK economic growth, temporarily breaching the Government’s fiscal rules would be unavoidable, even before one makes any allowance for the impact of the Northern Rock rescue.

“There can be little doubt that breaching the fiscal rules could undermine credibility and confidence in the short term. Nevertheless, we believe such a breach would be justified if it helps to alleviate a severe economic downturn. At the very least, the automatic stabilisers, which increase automatically the size of the budget deficit when the economy slows, must be allowed to do their job and mitigate the downturn. Tax increases or spending cuts would be totally unacceptable when growth is seriously threatened.

“Once the present crisis is over and the economy recovers, the Government must take determined measures to strengthen the UK’s medium term budgetary position. It must also establish a more credible fiscal framework, which is supervised by independent experts.”

Ends

Media Contacts:

Fiona Cunningham
Tel: 020 7654 5812
Email: f.cunningham@britishchambers.org.uk

OR

Sam Turvey
Tel: 020 7654 5813
Email: s.turvey@britishchambers.org.uk

Notes to Editors:

The British Chambers of Commerce (BCC) is the National Voice of Local Business.
The BCC sits at the heart of a powerful nationwide network of Accredited Chambers of Commerce serving business across the UK, which employ over five million people.