Professor John McHale:

We do not think the fiscal rules are perfect by any means. On the other hand, they broadly get us in the direction we need to go in terms of moving towards a balanced budget. There is nothing sacred about a balanced budget in particular. It also puts us on a path to bring the debt down in order that we can move to a safer level so that if we are hit with some negative shock in the future, we will not have to implement a big austerity programme to pull ourselves out of it. Also, elements of the rules, including the expenditure benchmark, are designed to prevent the type of procyclical response to revenue surges that we have been discussing. The reason that it was able to occur this year is that we are in an odd transition between one phase of the rules, the corrective arm of the Stability and Growth Pact, and what is called the preventive arm. It allows this to happen within the rules but we think it is very much against the spirit of those rules.

The rules are not perfect but when one puts it together with the overall budgetary framework, including our system of expenditure ceilings and the fact they are not just European rules but also national rules as part of our Fiscal Responsibility Act, we now have a framework which, if we follow and respect it both in the letter and the spirit, means we have a very good chance of avoiding the pattern of mistakes we made over the decades of boom and bust that have done such damage to us. In that sense overall, we are supportive of the budgetary framework but we are also supportive of efforts to fine-tune it, identify the problems with it and make it even better.