The FT front pages the Treasury’s supposed plan to break the Golden Rule and breach Gordon’s self imposed debt limit of 40% of the UK’s gross domestic product.

The truth is the City and the Gilts market has regarded the Golden Rule as a political fiction for years. 700 or more PFI debts that build schools and hospitals owned by the state are government guaranteed debt whatever fudge the government claims. Northern Rock mortgage guarantees are not only bad debts they are also government debts, the Network Rail debt likewise, state pensions are another unfunded government debt.

The Office of National Statistics made it officially 43.1% back in May (full explanation from IFS download here). The only news is that the Treasury looks set to admit the truth. The pathetic reality is that Gordon’s psychology did not allow him to admit his failure to keep his own rule. The rule could have been kept to in the good times, it hardly needed much fiscal rectitude to sustain when he inherited falling public debts from Ken Clarke.

The Treasury is spinning this morning that it is not going to break or loosen the rules. Guido suspects it will “redefine” the economic cycle somehow.

See also Fantasy Island Economics.