Rule changes let Gordon Brown slip tax noose, but his luck may not hold

London Briefing: And with one bound he was free. Gordon Brown's redefinition of the business cycle is not exactly the stuff of banner tabloid headlines, but if any other politician had changed the rules of the game in such a blatant fashion, the media would have taken him to the cleaners.

Under the old rules, Brown would have had to raise taxes some time over the next few years. Those rules required public borrowing to be equal to capital investment over a full economic cycle.

Whether such a rule is sensible is actually beside the point. From a purely pragmatic perspective, it fails the basic tests of any policy rule: can it be implemented with transparency, simplicity and without ambiguity?

Anything that relates tax rates and spending on schools and the NHS to Britain's precise point in the business cycle is hardly going to be the stuff of dinner party conversations. Whether taxes go up can depend on whether the current cycle began in 1999 or 1997: choose one year and taxes have to rise; choose the other and they don't (at least for a good while).

The extremely esoteric art of dating the business cycle is essentially left to the boffins at the Office for National Statistics. The trouble with specifying the start and end of a particular business cycle is that it is a science that relies on the accuracy of economic data.

The problem for the business cycle statisticians is that their colleagues down the corridor who deal with economic statistics are forever revising the past. And those revisions can be substantial. Dating the cycle can be a bit like inferring the age of a tree from the concentric rings contained in the trunk: it's all very well, but the ONS keeps changing the shape of the rings.

In the US, it's all left to an independent committee who, usually some years after the event, tell us when the cycle began or ended, using well understood criteria. The ONS is probably very independent but seems now to need a structure such that it is seen to be free from political influence.

Inevitably, comparisons have been drawn between Brown's fiddling of the fiscal rules and the earlier flouting of the infamous Growth and Stability Pact adopted by countries participating in the euro.

Europeans, fed up to the back teeth with Gordon's lectures about the strength of the British economy and the delights of following a fiscal policy characterised above all by prudence, are revelling in the obvious discomfort now being felt by Brown.

Apart from accusations over fiddling the books, he now has to face up to the fact that his economic forecasts for 2005 are looking increasingly optimistic. More than any other proud boast, Brown has always claimed much credit for being a better forecaster than anybody else.

This claim was always a hostage to fortune. Brown would have been well advised to adopt a more modest posture: economic soothsayers who get it right are invariably lucky rather than prescient. Brown's run of good luck was bound to come to an end sooner or later.

One of the great oddities about politics and economics is the extent to which any administration gets either the blame or the credit for what happens to the economy. Depending on whom you listen to, Brown is either a genius for presiding over nearly 13 years of uninterrupted growth (conveniently forgetting that he only became chancellor eight years ago) or simply a lucky man, reaping the benefits of a benign global economy and the structural reforms implemented by his Thatcherite predecessors.

Brown won't be raising taxes over the next couple of years, thanks to that esoteric decision to redefine the business cycle. That probably won't cost him any political capital with his party or the wider electorate but the euro-style book-cooking is another step along the road to Brussels and has not gone unnoticed in financial markets.

Just where the business cycle goes from here is now down to the Bank of England. Brown just has to sit and watch and hope that his luck holds. That requires the coming gentle cuts in interest rates to be sufficient to ensure that he won't be the first chancellor since Norman Lamont to preside over an actual recession.

Chris Johns is an investment strategist with Collins Stewart. All opinions are personal.