Darling set to scrap 'golden rule'

Chancellor Alistair Darling will this week announce plans to scrap the fiscal "golden rule" introduced by Gordon Brown when Labour came to power.

Mr Darling will confirm that he intends to get rid of fiscal rules that are seen as too rigid, such as Mr Brown's "golden rule" only to borrow to invest over the economic cycle, according to the Financial Times.

He will reportedly use Wednesday's Mais lecture in the City to unveil allowances for higher levels of borrowing as the UK goes into recession.

It is understood that details of the reforms will be laid out in the forthcoming pre-Budget report, in which the Treasury is expected to give itself more flexibility in short-term borrowing.

The Chancellor is expected to say that fiscal policy needs to be more flexible when the economy is going through global economic turmoil.

Official data showed on Friday that the British economy had shrunk for the first time in 16 years - and by a much greater margin than experts had predicted, at 0.5% in the third quarter.

But the FT said Mr Darling was also looking at formal external oversight of the public finances, either by the National Audit Office, Parliament or an independent body.

The chancellor is also reportedly considering long-term targets to cut the UK's fiscal deficits and financial debt in the future.

In a speech to business leaders, Gordon Brown will insist he is right to increase public borrowing to tackle the downturn, despite the latest quarterly public debt figures hitting a record £37.6 billion - higher than the whole of the previous year.

The Prime Minister also hinted on Sunday that there could be further co-ordinated interest rate cuts as food and fuel bills come down as a result of falling oil prices.