George Osborne will stake his reputation on Wednesday on achieving budget surpluses for years to come, enshrining his pledge to pay down debt in normal conditions in legislation in the autumn.
Emphasising how the Conservative majority government differs from the coalition on fiscal policy, the chancellor will tell City grandees at the Mansion House dinner on Wednesday that British governments will in future run surpluses almost every year.
Mr Osborne sees his proposed budget surplus law as the capstone of his struggle to restore order to the public finances since becoming chancellor in 2010: a means of locking in his legacy of balancing the books.
Only six months after the coalition legislated for a fiscal framework to achieve a cyclically-adjusted current balance by 2017-18, the chancellor plans a more ambitious new mandate from parliament. “In the Budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents,” he will say.
It comes on the heels of the Conservatives’ pre-election pledge to ban increases in the main rates of income tax, national insurance and VAT until 2020.
Mr Osborne will challenge Labour to either support or reject a measure he says will “bear down on debt and prepare for an uncertain future”. Aiming high, he says he wants a “permanent change in our political debate and our approach to fiscal responsibility”.
Mr Osborne has previously said that this new framework would still enable the country to run deficits in recessions. In January, he said the independent Office for Budget Responsibility would be given the task of determining when Britain is not in “normal times” based on weak growth or evidence of significant idle capacity.
At these times, the government would have to determine how it planned to return the public finances to surplus.
The proposed new law will have many critics on the left and among economists who think it is too rigid. An International Monetary Fund paper recently warned countries not to shoot themselves in the foot by attempting to reduce public debt too quickly.
But the chancellor’s move puts the candidates for the Labour leadership in a tight spot and will be an early test for the next leader of the party.
Each of the three main contenders for the September leadership vote — Andy Burnham, Yvette Cooper and Liz Kendall — has admitted that the last Labour government spent too much before the 2008 crash and has committed to rebuilding the party’s fiscal credibility.
But Mr Osborne knows that for Labour to vote for a budget surplus law would be a significant additional step for whoever succeeds Ed Miliband, removing the ability of a future government to follow Gordon Brown’s example of borrowing in good times.
To demonstrate his commitment to budgetary prudence, Mr Osborne will also announce that an obscure group — the Committee of the Commissioners for the Reduction of the National Debt — will meet for the first time in 150 years to discuss the plan for permanent deficit reduction.
The committee, which includes the chancellor, Bank of England governor, the Lord Chief Justice and the Speaker of the House of Commons, last met in 1860 and was established by William Pitt the Younger.
[“source – ft.com”]