Osborne’s Charter may be clever politics, but it is poor economics

Today’s debate on the Tories’ Fiscal Charter is rightly focussed on the big choice we have before us. A choice for an economic policy that is based on short-term politics or one based on long-term economics.

This evening I will be voting against the Chancellor’s revised Fiscal Charter – having supported the current Charter in January. Labour’s stated policy is to eliminate the current budget deficit every year, balancing day-to-day spending to get national debt falling as soon as possible. The previous Charter was consistent with that position.

Labour is committed to getting the deficit under control, as the Shadow Chancellor made clear in his Conference speech and reiterated again this week. Indeed, getting the deficit down is core to our approach – but we believe there is an alternative way to achieve this.

We will set out how and when we would balance the books, the conditions under which we would expect a current surplus to be achieved and how it would be done in a fairer way. Our conditions would also ensure we have investment for growth, and protect frontline public services. And building on John McDonnell’s speech at conference we are kick-starting a national debate today about political economy, engaging new voices and the public in discussions and debate about our economic choices and the outcomes we want to achieve.

Such an open debate would be unparalleled. Osbornomics is characterised by sleights of hand and attempts to hide reality. The Chancellor has not only borrowed £200bn more than he forecast over the last Parliament, he is also introducing tax credits cuts that will see three million working families on average £1300 worse off from April next year.

But it’s also really important to recognise there is a key difference between January’s Charter and today’s Charter, which in the last few days has been subject to greater scrutiny.

That is the issue of investment for jobs and for growth. The new overall surplus target (rather than current budget surplus) has been criticised by expert voices even from outside the Labour party for three main reasons. Firstly, his rule leaves governments inflexible to changing economic circumstances, secondly it will potentially result in households, consumers and business borrowing more to bring balance to the economy and thirdly it does not allow for borrowing for capital investment particularly when the cost of capital is so low. Indeed when the Treasury Select Committee took evidence in the summer, they struggled to find any supportive voices for George Osborne’s new Charter.

This is simply not sensible in the current global economic environment. His Charter today may be clever politics, but it is the poor economics.

And it is a disappointment that rather than focus on economics, Osborne has chosen a politically motivated target that will join the list of fiscal targets that have come and gone. This is the fourth time Osborne has come to the House to vote for a fiscal mandate he has then failed to achieve.

Worse still, people have good reason to be cynical that the underlying goal that Osborne is seeking to achieve is an ideological small state, without any deep thought about the impact on the needs of industry, public services, and the sustainability of jobs and growth. Indeed his choice to turn a blind eye to SSI in Redcar with the loss of thousands of jobs, and effectively preside over the decline of one of our most important manufacturing plants vital for our steel exports is a sign of more to come.

This debate has to also be about demonstrating our fiscal responsibility and challenging Osborne’s record. Osborne’s new target is too inflexible and it’s the poor economics. We are proposing an alternative that is in the long-term interests of the UK. That’s what the public expect from a responsible Government and Parliament and that’s what we will give them. We can either invest for success, or ideologically cut for failure.

That’s why today’s vote is really important, and is not an academic discussion about one target or another, it’s a real economic debate about a choice that is likely to negatively impact once again the lives of the hard working people Labour exists to represent.