Paying off the debt, one law at a time

20 July 2015
What was claimed

Future governments are required to run a budget surplus when the economy is doing well.

Our verdict

These kinds of rules can always be repealed by a future government, and they can be broken without any particular legal consequences.

"... governments will be required to maintain [a] surplus in normal times"

George Osborne, 8 July 2015

"Ultimately, any law obliging future governments to run a budget surplus would only have political force."

Andrew Henderson, lawyer, 10 June 2015

Much was made last month of George Osborne's announcement of a "budget surplus law", intended to create a "permanent commitment" to paying off the government's debt when the economy is doing well.

This is the latest in a series of targets that Chancellors of the Exchequer have set themselves over the years. For all that these fiscal rules may be "enshrined in law", it's not legally impossible for governments to break them.

Any law like this can be changed

In Full Fact's report on this year's general election, we point out five common ways in which spurious claims are conceived and believed. One of them is an exaggerated faith in legal solutions.

Passing a law isn't, in our political system, any guarantee of permanence. Parliament can pass laws on any subject, and it can repeal any of the laws that have gone before (it has been argued that there might in theory be limits to this in extreme cases, but this isn't one of them).

Take a similar example to the budget surplus law: the government's proposed "tax lock", or legislation stating that certain taxes can't rise.

A key to this lock isn't far to seek. A future government—or indeed the current one—could pass new legislation stating that taxes are to rise after all. That would overrule the law saying that they can't.

Indeed, because a law has to be passed every year about income tax before it can legally be collected, the process for increasing it is essentially the same with or without this tax lock.

What the tax lock amounts to is a promise—politically rather potent, in the sense of being embarrassing to go back on—not to raise these taxes. The legislative process has been used to give the promise an increased degree of formality, but doesn't imbue it with any particular legal force.

Fiscal rules are made to be broken

The "budget surplus law" can also be rowed back on in future—just as Labour's 'Code for Fiscal Stability' was replaced by the last government with the 'Charter for Budget Responsibility' in 2011.

What the government is proposing is an update to that Charter: changing it to demand a budget surplus every year, unless the economy weakens beyond a certain point.

If that target remains in place, does it have any official consequences?

No. The Charter may be voted on by MPs, but it's not an Act of Parliament. And a fiscal target, whether or not expressed in an Act, isn't something the courts are likely to weigh in on. A judge might, at a push, declare for the record that a legislative target has been missed, but can't get involved in telling the government what to do about it.

We don't need theory to tell us this; we have examples. A previous version of the Charter set a target on government debt: it should be falling this year (as a percentage of GDP). The Chancellor subsequently decided "to accept that we had missed the debt target", and he was within his rights to make that call.

So if you can't call the police to 11 Downing Street when a fiscal rule has been broken, what do they accomplish?

A formal statement of policy—and politics

The Institute for Fiscal Studies says that "a well-set out code for fiscal policy can make it easier for a government to gain credibility over its economic policies". Making clear the numbers you're setting out to hit makes you look good if you hit them. Legislating rather than just making a speech also gives, as the Institute for Government put it, "an external signal of the seriousness of government intent".

Not everything has to be enforceable in a court for it to be important. Future governments that want to abolish or amend the Charter so that they're no longer formally committed to a surplus would have to factor in the risk of appearing unconcerned with reducing the debt. A Chancellor keen on debt reduction would be entitled to say that's a perfectly satisfactory political outcome.

But as with the "tax lock", using law for these purposes has the potential to confuse, giving what's essentially a statement of policy a spurious air of immutable legality.

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