Sustainable Investment Rule
Encyclopedia
The sustainable investment rule, as referred to in the United Kingdom, is one of several fiscal policy principles set out by the incoming Labour government in 1997. These were first set out by then Chancellor of the Exchequer
Gordon Brown
in his 1997 budget speech. Subsequently they were formalised in the Finance Act 1998 and in the Code for Fiscal Stability, approved by the House of Commons in December 1998.
The sustainable investment rule states that public sector net debt as a proportion of gross domestic product
(GDP) will be held over the economic cycle at a stable and prudent level. The Chancellor has stated that, other things being equal, net government debt
will be maintained below 40% of GDP over the current economic cycle.
This "rule" is however merely a stated aim with no sanctions against the incumbent government if broken, unlike some balanced budget provisions used in other countries.
The sustainable investment rule is the counterpart to the Golden Rule
, introduced at the same time.
Chancellor of the Exchequer
The Chancellor of the Exchequer is the title held by the British Cabinet minister who is responsible for all economic and financial matters. Often simply called the Chancellor, the office-holder controls HM Treasury and plays a role akin to the posts of Minister of Finance or Secretary of the...
Gordon Brown
Gordon Brown
James Gordon Brown is a British Labour Party politician who was the Prime Minister of the United Kingdom and Leader of the Labour Party from 2007 until 2010. He previously served as Chancellor of the Exchequer in the Labour Government from 1997 to 2007...
in his 1997 budget speech. Subsequently they were formalised in the Finance Act 1998 and in the Code for Fiscal Stability, approved by the House of Commons in December 1998.
The sustainable investment rule states that public sector net debt as a proportion of gross domestic product
Gross domestic product
Gross domestic product refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living....
(GDP) will be held over the economic cycle at a stable and prudent level. The Chancellor has stated that, other things being equal, net government debt
Government debt
Government debt is money owed by a central government. In the US, "government debt" may also refer to the debt of a municipal or local government...
will be maintained below 40% of GDP over the current economic cycle.
This "rule" is however merely a stated aim with no sanctions against the incumbent government if broken, unlike some balanced budget provisions used in other countries.
The sustainable investment rule is the counterpart to the Golden Rule
Golden Rule (fiscal policy)
The Golden Rule is a guideline for the operation of fiscal policy. The Golden Rule states that over the economic cycle, the Government will borrow only to invest and not to fund current spending. In layman's terms this means that on average over the ups and downs of an economic cycle the government...
, introduced at the same time.
Further reading
- http://www.hm-treasury.gov.uk/documents/uk_economy/fiscal_policy/ukecon_fisc_index.cfm