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The ‘budget surplus’ rule scam

In a speech to at the Mansion House, London on 10th June 2015, the UK Chancellor of the Exchequer announced his intention “that, in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future”, and that “in the Budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents.” This ‘fiscal surplus’ law is ill-defined and is essentially unenforceable. It appears without any economic rationale as to why a budget surplus would be either desirable or indeed achievable in a sustainable manner.  

Ahead of the July 2015 Budget, this thinkpiece by Professor Malcolm Sawyer analyses the Chancellor's ill-defined 'budget surplus' rule, outlining how it is essentially unenforceable and lacking an economic basis. This paper sets out the key objections to the ‘budget surplus rule’:

  1. It is put forward without any economic rationale: there is simply no reason to think that a long term budget surplus is appropriate for the economy, desirable or even achievable;
  2. It is unachievable without major and dramatic changes to investment, savings, exports and imports: there is sparse evidence that those changes are on the horizon or would be sustainable. If those changes did occur, then the budget deficit would diminish by itself;
  3. It is advanced to be a political trap seeking to lure Labour into committing to such a rule where there is scant possibility that it can be achieved in this Parliament and it would undermine the economic plans for the next Labour government;
  4. It seeks to bind future governments and to prevent them from responding to changing economic, political and social circumstances;
  5. It would limit the government’s ability to borrow funds in order to invest;
  6. It is an attempt at a public relations exercise with the introduction of a law which would lack any clarity, be unenforceable,  and lack any effective sanctions if the law were not adhered to

Instead, this paper makes the case that the central purpose of government fiscal policy should be provision of high quality public services and a progressive tax system with the balance between public expenditure and tax revenues designed to secure high levels of employment.