A few things I’d like to see from the Budget

Two things the Chancellor really should do

 

Abandon the thoroughly discredited “fiscal rules”

• There is no economic rationale for keeping debt at under 40% of GDP, and the current number has turned into a target, not a limit.

• There is no good economic rationale for the government balancing current expenditure over an economic cycle, for three reasons: first, because the distinction between “investment” and “current spending” is totally artificial when it comes to the government; second, because the current rule has created a license to “invest” as much as the government likes, and creating a ridiculous situation in which macroeconomic credibility depends on arcane statistical issues such as the precise definition of roads maintenance; and thirdly, because it isn’t so that current spending should always balance across the economic cycle – some cycles that may be a good idea, some cycles it will be good to run a surplus, and some cycles it will be good to run a deficit.

What we need is an annual statement of the government’s current forward-looking view as to the appropriate levels of the total budget deficit (including investment) over the next few years, and its view as to the appropriate near-term evolution of debt (including a rationale for that evolution).

Make a statement about the inflation target

 

We urgently need the Chancellor to explain how he interprets the band of discretion around the inflation target.  Should inflation only go above 1% or below 3% in extreme cases or as an unpreventable result of unforeseen shocks?  Or can inflation go above 3% or below 1% whenever the Bank can give a good enough tale about how it is going to get inflation back to 2% in due course?

 

Also, what is the right inflation target for 2008?  Is it 3%, as the Bank of England seems to believe?

 

A few things I’d like to see him do that he won’t

• Introduce price-level targeting to replace inflation targeting

• Raise the personal allowance to £10,000, and raise the basic rate of income tax to 25p

• Indicate an intention for aggregate public expenditure to grow more slowly than the economy over the next few years, with an aspiration figure after which time the policy would be reviewed with a view to making spending grow at the same rate as the economy (e.g. once spending reached 35% of GDP)

What would you like to see?