HM Treasury News Release
147/97                                       24 November 1997
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             GOVERNMENT LEARNS LESSONS FROM THE PAST 

Learning the lessons from the past is the key to successfully
running Britain's public finances, says a Treasury paper
published today.

The paper, 'Fiscal policy: lessons from the last economic cycle',
identifies two key lessons for fiscal policy based on the
experience of the last economic cycle: 

     * adopt a prudent approach; and 

     * an open and transparent fiscal policy.


Chancellor of the Exchequer Gordon Brown said:


     "The Government is determined to prevent a return to the
boom-bust cycles of the past, and that means learning the lessons
from the last economic cycle.  

     "These important lessons have been taken on board in the
design of the new fiscal framework, which will be set out in more
detail in Tuesday's Pre-Budget report.  They confirm that this
is the time to remain vigilant; there will be no relaxation of
our tough approach to public spending.

     "Just as the new framework at the Bank of England was
designed to deliver low inflation, so the proposed Code for
Fiscal Stability aims to encourage economic stability and will
help to prevent history repeating itself."






NOTES FOR EDITORS

1.   The Treasury paper notes that the current economic situation
bears some similarities to that of ten years ago.  The economy
is moving above trend and borrowing is forecast to fall to low
levels. Shortly after this point, however, during the last
economic cycle, the public finances deteriorated rapidly.  The 
     PSBR reached 7 per cent of GDP in 1993-94. The costs of that
deterioration  have been high.

2.   In highlighting the need for a prudent approach, the paper
notes that fiscal   surpluses at the end of the 1980s, when the
economy was the peak of the   economic cycle, gave a misleading
picture of the health of the public finances. Policy was,
however, relaxed, causing the fiscal position to deteriorate in
a way that was not predicted in illustrative projections.  The
paper recommends that policy makers should adjust for the
economic cycle and build in a margin for uncertainty.

3.   It also argues that policy makers should set stable rules
and follow them consistently, and should explain clearly fiscal
policy decisions.  However, over the last economic cycle, the
stated fiscal policy objectives changed on a number of occasions
as the fiscal position evolved.  And estimates of cyclically-
adjusted  indicators were not published, making it difficult for
outside observers to assess policy decisions.   

4.   The paper briefly describes how the Government has taken on
board these lessons in the design of the new fiscal framework:

     -    the deficit reduction plan introduced in July built in
          a margin for uncertainty;

     -    economic projections are based on a cautious
          assumption of trend output scrutinised and endorsed by
          the independent National Audit Office;

     -    the Government has set clear fiscal rules over the
          duration of the economic cycle;
     
     -    cyclically-adjusted fiscal indicators were published
          for the first time in July; and

     -    the Government's commitment to transparency and
          stability, and to achieving  its fiscal rules, will be
          key elements of the Government's proposed Code for
          Fiscal Stability.

5.   The paper will be available from Treasury Press Office on
the morning of Monday 24 November. Non-media copies will be
available from the Public Enquiry Unit (0171 270 4860/4870/4880).