Economic and Fiscal Strategy Report 1998

Stability and Investment for the Long Term

This first Economic and Fiscal Strategy Report lays the foundations for the Comprehensive Spending Review, the conclusions of which will be announced in July. The Government’s new approach is based on four key themes:

Fiscal prudence:

• The Code for Fiscal Stability sets out the broad fiscal framework. Within that framework, the Government’s approach is defined by two strict fiscal rules applied over the economic cycle: the golden rule and the sustainable investment rule (the latter requiring the net public debt to GDP ratio be held at a stable and prudent level). These rules reinforce economic stability, which is vital for growth and employment.
  
• The fiscal stance was tightened very considerably in 1997-98. The new projections in this Report lock in the fiscal tightening projected in the March Budget. Between 1996-97 and 1999-2000, public sector net borrowing will have fallen by 3½ per cent of GDP.
  
• The Government has set firm plans for overall spending over the remainder of this Parliament based on a careful assessment of what can be afforded while still meeting the fiscal rules and the Government’s spending priorities. This sets the framework for the conclusions of the Comprehensive Spending Review. The Government has concluded that real growth of current spending can average 2¼ per cent per annum over the remainder of this Parliament.

Investment and best use of assets:

• The Government will establish an Investing in Britain Fund to renew and improve Britain’s infrastructure and public sector. This Fund will allow public sector net investment almost to double, stabilising at 1½ per cent of GDP by the end of this Parliament. Investment will remain well within sustainable bounds: the ratio of net public debt to GDP is projected to decline to below 40 per cent. This decline is prudent over this economic cycle.
  
• The Government will also continue to improve public sector asset management to produce a more efficient and effective use of resources. This includes a programme of disposals to release funds for new investment and the development of new public-private partnerships.

Stable and long-term plans:

• The Government is establishing a firm public expenditure envelope for the next three years. This gets away from the short-termism, incrementalism and excessive departmentalism of annual spending rounds. It will end the existing piecemeal, department-by-department, approach to spending.
  
• The Government is reforming the regime for planning and controlling spending to improve spending control and promote longer term planning.

Wider economic reform to support the objectives of the Comprehensive Spending Review:

• The Government’s central economic objective is to achieve high and stable levels of economic growth and employment, which will promote greater fairness and social cohesion, while also respecting the environment.
  
• The Government has put in place major fiscal and monetary policy reforms to deliver greater economic stability and has introduced a wide-ranging programme of structural policy reforms to encourage work and increase productivity. These reforms will also enable Britain in due course to take part successfully in the single European currency, should it choose to do so.

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