UK's Brown has more room to meet budget rules

The prospect of British tax hikes next year receded somewhat on Tuesday after finance minister Gordon Brown said the current economic cycle started two years earlier than previously thought, giving him extra leeway to meet his fiscal rules.
The Chancellor of the Exchequer also postponed next year's spending review to 2007 when the government will launch a comprehensive 10-year reassessment of how it spends its money, a move that could tighten Brown's grip on the public finances.
Brown said new data suggested the economic cycle started in 1997, allowing him some 10 billion pounds extra margin of error on his "golden rule" - that a government borrows only to invest over the cycle.
"All the evidence now points to the economic cycle starting in 1997-98," Brown told a parliamentary committee.
Economists said moving the start of the cycle was probably justified and would ease pressure for tax rises just when the economy was slowing, but the next cycle due to start in 2006 would still kick off with a structural deficit.
"What today's change does not do is address fiscal issues in the next economic cycle," said Philip Shaw, chief economist at Investec.
Critics have long argued that Britain's government borrowing is running out of control and that taxes would have to go up by around 10 billion pounds next year if Brown wants to meet his fiscal rules.
But policymakers are unlikely to countenance tax rises just when consumers - the key drivers of growth in recent years - appear to be reining in their spending, slowing the economy sharply as a result and putting Brown's forecasts at risk.
The Bank of England is widely expected to cut interest rates next month to revive flagging consumer spending after having raised borrowing costs five times since November 2003.
The extra buffer provided by bringing the fiscal surpluses of 1997 to 1999 into this economic cycle might be enough to put off tax rises for now, analysts said.
"We believe that if the golden rule is to be adhered to on an ongoing basis taxes will eventually have to rise," said John Butler, UK economist at HSBC.
"Nonetheless today's adjustment suggests there is little urgency to such hikes and that the impact of weaker GDP growth on the public finances can now be financed through greater government borrowing."