Darling set to relax fiscal rules

Alistair Darling has signalled a new approach to fiscal policy, saying his "core objective" must be to help the UK through a likely recession.

The chancellor paved the way for the government to relax its fiscal rules by stating it would be "perverse" to apply them rigidly at the moment.

In a speech in London, Mr Darling said it was "sensible" to raise borrowing to maintain investment in key areas.

Opposition parties have warned ministers against a "spending splurge".

'Position of strength'

Earlier on Wednesday, David Cameron accused Gordon Brown of "irresponsibility" for appearing to suggest that the government could spend its way out of its current economic problems.

He also pressed Prime Minister Gordon Brown to admit his "golden rule" governing borrowing and debt levels - one of the cornerstones of Labour's economic policy since coming to power - had "collapsed completely".

To apply these rules rigidly in today's changed conditions would be perverse Alistair Darling

Mr Darling used a speech in the City of London to signal a revision of the fiscal rules established by Mr Brown in 1997.

He argued that the rules had enabled the government to triple public investment over the past 11 years, while leaving the public finances in a "position of strength" with debt lower than in other major economies.

But he indicated the existing rules were now longer appropriate at a time when the UK was "moving into recession".

"To apply these rules rigidly in today's changed conditions would be perverse," he said.

"We must respond to the challenges we face today, supporting the economy now and maintaining public investment - while at the same time ensuring we live within our means in the medium term."

The chancellor added that the fiscal rules "provide a discipline on government - they are a means to an end.

"And our core objective right now is to get the economy through these difficult times".

Commenting on the move, BBC Business Editor Robert Peston said: "There can be no doubt that he will have to reform the fiscal rules in a matter of weeks, and come up with a convincing plan to reduce the national debt as and when economic growth resumes."

And Robert Chote, director of the Institute for Fiscal Studies, said: "Alistair Darling has sensibly accepted the inevitable: that there is no realistic chance of sticking to Gordon Brown's fiscal rules over the next few years. "

'Out of control'

The Conservatives have accused the government of letting borrowing spiral "out of control" while the Lib Dems have called for targeted tax cuts rather than a big increase in public spending.

Shadow chancellor George Osborne said: "There's only one thing that is perverse: the government now has no plan to bring the public finances under control, just a mounting overdraft that will have to be paid off by taxpayers."

Liberal Democrat Treasury spokesman Vince Cable said: "He's acknowledging the inevitable.

"He hasn't explained why, all of a sudden, the rules have had to be relaxed, when there's clearly been a deterioration in the position, particularly in relation to public debt, for some time."

Borrowing between April and September totalled �37.6bn, not far off the government's projected figure for the whole year.

Mr Darling said the fiscal rules must adapt in light of the "extraordinary pressure" on government tax revenues caused by the banking crisis and the economic downturn.

But he stressed that the principles underlying the government's policy, namely its emphasis on credibility, flexibility and transparency, would remain in place.

"People may should be in no doubt that government will take the decisions necessary to ensure sustainability in the medium term," he said.

"To return borrowing and debt to a sustainable level once these shocks have worked through."

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