IFS urges the chancellor to drop his debt rule - but that shouldn't let the coalition off the hook
Britain's top tax thinktank, the Institute for Fiscal Studies, has added its voice to Sir Mervyn King's in offering George Osborne an alibi for dropping his second fiscal rule at December's autumn statement. The coalition promised, in its "supplementary target", that debt as a proportion of GDP would be falling by 2015-16; but with the Office for Budget Responsibility likely to downgrade its growth forecasts yet again, and revenues coming in weaker than expected because of the double-dip recession, that's looking increasingly unattainable.
The IFS's reasoning is different from King's. While the governor suggested that Osborne would be justified in changing course because external events - not least the eurozone crisis - have made it tougher to hit his targets, IFS deputy director Carl Emmerson says in a new article that the rule was never worth the paper it's written on.
As Emmerson and his colleague Gemma Tetlow put it: "Forcing debt to fall between two fixed dates does not ensure long-run sustainability, since it does not constrain the government from allowing debt to rise inappropriately before or after those dates."
Instead of seeing the chancellor hurriedly replace the target with a new rule drawn up between now and December, the IFS's number crunchers urge him to launch a cross-party consultation, with a view to coming up with a more sensible rule before next year's Budget.
They're absolutely right that the debt rule is all but meaningless, and won't secure the long-term health of the government's finances. But that shouldn't blind anyone to the fact that if Osborne stands up on 5 December and is forced to abandon the rule, it would be a humiliating admission that the coalition's deficit-cutting strategy is way off course.
Ditching the rule would be a better approach than the Treasury slashing about with the spending axe in a desperate bid to meet an arbitrary target, just as the economy looks likely to emerge from double-dip recession.
But there should be no hiding the fact that the coalition were far too optimistic about the economy's resilience in the face of savage spending cuts. Revenues are weaker than expected, and spending is higher, because the economy remains so fragile. Nick Clegg argued in his speech on Wednesday that the government faces, "the gargantuan task of creating a new economy from the rubble of the old". But as Greece's pitiful example should have shown, austerity for its own sake is no way to rebuild an economy: in fact, it's just as likely to be self-defeating.
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