LONDON, Oct 10: The British government’s admission it needs to ramp up borrowing to offset weaker tax revenues means it runs a serious risk of breaching its own fiscal rules, the Institute of Fiscal Studies said on Wednesday.

Borrowing this year and next will be 10 billion pounds higher than envisaged in March, according to forecasts unveiled by finance minister Alistair Darling in his first pre-budget report.

Darling also revealed the recent credit crunch and a weaker outlook for corporation and income tax receipts had opened a 6.5 billion pound hole in next year’s current budget balance.

“This has once again delayed the long-awaited moment at which the Treasury expects the current budget balance to be back in the black,” said Robert Chote, the think-tank’s director.

Chote also criticised the government’s plan to find an extra two billion pounds, not mentioned in the March Budget, to spend on education.

The government’s fiscal framework revolves around two key rules devised a decade ago by Darling’s predecessor Gordon Brown.

The “golden rule” states the government can borrow only to invest over the economic cycle while the “sustainable investment rule” limits public sector net debt to 40 per cent of gross domestic product.

Projections from Alistair Darling showed government debt will rise from 37.6 per cent of GDP this fiscal year to 38.8 per cent in fiscal 2009/10, below the target ceiling, but only just. Given the government’s track record on forecasting accuracy, the IFS reckons there is a 44 per cent chance public sector net debt will have breached the ceiling by then.Think-tanks, including the IFS and the IMF, have long argued that the fiscal rules need to be revamped.

The first rule is problematic because it is dependent on the Treasury’s definition of the economic cycle, which can only be measured retrospectively and even then without much accuracy.—Reuters