Date:   28th February 2008

 Dear Gordon Brown
 

GB's Golden Rule

I meant to write to you prior to the Budget but had deferred this letter. One of the reasons that contributed to the delay is that my article was written when you were Chancellor. One of the most remarkable events in your time as Chancellor was your decision to delegate control to the Governor of the Bank of England to make decisions on Bank Rate. I feel that one of your other achievements as Chancellor should be remembered (and hope it is still being followed) -your Golden Rule. I quote from the Wikipedia and also from the BBC:

 The Golden Rule is a fiscal rule adopted by Chancellor of the Exchequer, Gordon Brown for HM Treasury in the UK to provide 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. Therefore, over the cycle the current budget (i.e., net of investment) must balance or be brought into surplus.

 www.http://en.wikipedia.org/wiki/Golden_Rule_(fiscal_policy)

Another definition is given below from the BBC's News website:

Mr Brown's problem is his self-imposed "golden rule". This says that on average over the ups and downs of an economic cycle the government should only borrow to pay for investment that supposedly benefits future generations. In other words, day-to-day spending that benefits today's taxpayers should be paid for with today's taxes.

 www.http://news.bbc.co.uk/1/hi/business/4045169.stm

 I presume the BBC News Website observation means that it can be difficult to follow your rule. Whether the current cost of peacekeeping in both Iraq and Afghanistan have contributed to the present difficulties is another matter.

Chancellor Gordon Brown's Golden Rule: Only Borrow Money to Invest for the Future coupled with his decision to give the Bank of England control over whether to adjust the Bank Rate has been better for the UK economy.  But why don't we all try to implement the same reasoning. Don't borrow money, unless it’s for investment in you and your family’s future.

What I would like to propose is an application of your Golden Rule for the individual. Let’s propose and call the rule: "GB's Golden Rule” GB’s Rule states that: The Individual Should Only Borrow Money for His or Her Family’s Future Benefit. Otherwise any money that is borrowed should be paid back from current annual earnings.

 The rationale is set by the individual considering the following:

1. Do I need to spend borrowed money in order to benefit my or my family’s future prospects?

2. Money is "borrowed money" if it cannot be earned in the current year

3. Can this proposed borrowing be justified according to my personal benefits list?

 The consequences of people following GB's Golden Rule would be that the nature of the economy will change.  Some sectors will suffer as, for example, people may decide that they don't need to spend so much money on clothing -as they might do now.  But we should all be better off, some people may be more discriminating in what they buy leading to less waste as shoddy manufactured goods are left on the shelf. And all that interest on credit card use will drop as people reflect on what they are using the card for.

Although I can hardly hope that you will be able to endorse this adaption of your Golden Rule to the individual I have thought that you would probably like to read about it, after all, you are entitled to! And as with other letters from A. Citizen, people will be able to read about this extension of your Golden rule that I believe will be of practical use to other citizens of the UK and elsewhere.

Certainly, I believe that there should be some revision of the advice from the Government on how people should manage both their spending and borrowing. Never mind those who don't need this advice: I would have thought that my adaption of your Golden Rule could form a basis for helping the individual manage their financial affairs. Perhaps it could form part of the advice given in schools to older children.

Yours sincerely

A. Citizen

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