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Monday September 28, 08:20 PM
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Britain to make annual deficit cuts legally binding
By Sumeet Desai and Matt Falloon
BRIGHTON, England (Reuters) - Britain will make annual budget deficit reduction a legal commitment in order to bind future governments to getting the national debt down, finance minister Alistair Darling said on Monday.
In a speech to his Labour Party's annual conference in Brighton, southern England, Darling also promised legislation in the next few weeks to end the "reckless culture" of excessive bonuses at financial institutions.
The cost of the worst recession in decades has sent public borrowing soaring and the budget deficit is expected to top 12 percent of GDP this year, denting the value of sterling and putting Britain's triple-A credit rating under threat.
Government officials told Reuters that the deficit reduction laws would be fleshed out in the pre-budget report and a range of options were on the table.
In 1985, the United States had the Gramm-Rudman-Hollings balanced budget act which provided for automatic spending cuts if the deficit exceeded a particular level.
This was followed in 1990 by the budget enforcement act which set caps on spending or had a "pay as you go process" where any new commitments had to be matched by cuts or tax hikes elsewhere.
Germany has recently committed to a debt reduction programme where every year the budget deficit has to be reduced by a quarter of a percentage point.
"We will introduce a new Fiscal Responsibility Act to require that the government reduces the budget deficit year on year, ensuring that the national debt remains sustainable in the medium term," he said.
"In the next few weeks, I will set out in the pre-budget report how we will protect front-line public services, bring the deficit down, and invest in the country's future."
Darling said spending will have to be cut in order to get the deficit down and put the public finances on a sounder footing.
But for now, he said, the stimulus had to stay in place until the economy was firmly out of recession. He stuck by his budget forecast that recovery would be underway by the turn of the year.
Analysts, however, were sceptical about the plans to enshrine budget deficit reduction in law, saying they would prefer to see more concrete proposals on how borrowing will actually come down.
"A better way to give the Budget plans more credibility would be to say how exactly you intend to get borrowing down," said Carl Emmerson of the Institute for Fiscal Studies.
Public expenditure and how to get it down has become a key battleground for an election expected within the next nine months.
But so far neither Labour nor the opposition Conservatives have spelled out detailed plans to curb spending.
