Lib Dems want a new rule to cut debt as Nick Clegg outlines fiscal thinking

http://www.theguardian.com/politics/2014/jun/09/nick-clegg-outlines-lib-dem-fiscal-position

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Nick Clegg will use a speech on Monday to distance the Liberal Democrats from Conservative economic thinking, setting out two new budgetary rules that his party would champion after the next election.

In his first major speech since the Lib Dems were humiliated in the European elections – coming fifth behind the Greens and winning just one seat – Clegg will say that while the Lib Dems, like the Tories, are committed to getting rid of the structural deficit by 2017/18, they would do it in a "fundamentally different" way.

He will also spell out the principles that he believes should apply to budgets after 2017/18 – combining a renewed focus on paying down debt with leeway to allow borrowing for projects that enhance economic growth.

Clegg himself would probably be happy to admit that the possibility of a majority Lib Dem government implementing these budgetary rules after 2015 is nonexistent, but the chances of a second hung parliament are quite high. In that event, Lib Dem fiscal thinking could become important in any coalition talks.

The speech may renew speculation that Clegg sees a post-2015 deal with Labour as more likely than one with the Tories.

Clegg will say Tory plans to get rid of the structural deficit by 2017/18 would involve cutting £12bn from the welfare budget because the party has ruled out tax increases.

"I cannot accept that at all. Yes, we'll finish the job – but we'll finish it in a way that is fair," he will say, stressing the Lib Dem commitment to getting the rich to pay more through a mansion tax.

Addressing budgetary policy after 2017/18, he will propose two new rules:

• First, a new "debt rule" would involve "significantly [reducing] national debt as a percentage of GDP year-on-year when growth is positive, so that it reaches sustainable levels around the middle of the next decade".

• Second, he will say, there should be a "balanced budget rule". This would commit the government to running a balanced budget over the economic cycle, excluding capital spending that enhances growth or financial stability.

This is not the same as the Tory approach, he will claim. "We don't believe in an ever-shrinking state. We are not so ideological about making cuts that we'll deny people the things they need. We're not so dogmatic about borrowing that we'll jeopardise Britain's economic health. Responsibility – yes, austerity forever – no."

Clegg's "balanced budget rule" sounds similar to Gordon Brown's golden rule – which was that, over the economic cycle, the current spending budget should balance, and that borrowing should only be for investment – but Clegg will insist that he is proposing something different.

"Gordon Brown used to slap the words 'capital spending' on anything and everything just so he could get away with borrowing to pay for it," he will say.

"That can never be allowed to happen again. Sound investment yes, reckless borrowing, no."

According to the Lib Dems, Clegg's proposals would allow borrowing to fund items such as transport, housing, and communications, which promote growth, but not schools and hospitals, which would have to be funded from ordinary tax revenues.