The Budget conjuring trick that’s wrecking Britain’s economy

The word “fiscal” gets thrown around a lot at the time of a budget, usually not registering much beyond a platitude. Jeremy Hunt, like his predecessors, is fond of using the opportunity to speak about “fiscal responsibility” and meeting the government’s “fiscal rules” (sometimes singular “rule”).

The problem, not to put too fine a point on anything, is that the UK’s main fiscal rule is… total bullshit. It’s not the harmless variety of bullshit, either – it contributes to the UK’s Treasury spending weeks at a time producing spending plans everyone involved knows will never happen, and then another team analysing them while having to play along to their fiction.

All of this is done in the name of credibility, which is at least important: the collapse of Liz Truss’s government shows that. But once you understand the function of the UK’s main fiscal rule, it quickly becomes apparent that the rule does nothing of the sort.

Each year, the UK budget sets out the government’s spending plans for the next five years. The “rule” to which it must adhere is that debt as a percentage of GDP must be falling between year four and year five of that period. This is done so that ministers can say debt will be falling by the end of the parliament.

In practice, this isn’t so much a rule as a conjuring trick – one that is easy to see through when you realise that year five never arrives. Each time a new budget comes, the fall in debt jumps back one year more.

By only ever caring about what happens between years four and five, plans can be drawn up that increase debt next year and the year after (the ones which actually get implemented), covered by a hypothetical belt-tightening later. “Give me chastity and temperance – but not yet,” has gone from a historical joke to modern-day government policy.

The result of all of this is that every year a new “five-year plan” for public spending gets drawn up, but everyone knows only the first one or two years of it will actually happen, before the whole thing is thrown out.

That gets even worse in election years, when opportunistic chancellors (including this one) “fund” pre-election tax cuts with brutal departmental spending cuts, set to take place after the election. It gives the worst kind of chancellors the chance to set up the next government to fail – even if the failure comes at the expense of the country.

There is no one cause of the UK’s endless short-termism and failure to get anything done, but the disastrous effect of having to essentially falsify our national accounts every two years to comply with an entirely arbitrary rule is hard to underestimate. How can you plan for spending ten years’ hence if you know that no-one is sincerely trying to plan beyond one or two?

Throwing out this rule should not be confused with throwing out the idea that credibility matters – but this accounting trick does nothing to boost our credibility. UK government debt is barely any cheaper than it was under Truss, and UK-listed companies trade at a discount.

Jeremy Hunt is trying old tricks and new to try to eke out this government for a few short months longer, through a budget aimed more at the backbenchers than at the public. Labour is likely to be the one to clean up the mess – but it shouldn’t stop at the superficial. Changing the rules is as necessary as fixing the spending. Labour can and should do both.