John McDonnell’s u-turn on the fiscal charter is worrying. The Shadow Chancellor may, one day, have control of the nation’s finances and taxpayers present and future deserve to know whether or not he will not rack up bills he cannot pay. Fighting this Bill is not going to inspire public confidence in the Opposition’s economic prudence, especially as the deficit wasn’t mentioned in the leader’s party conference speech for the second year running.
That is not to say that the fiscal charter itself is an especially good idea. The demand for a surplus in “normal times” sounds good but it speaks volumes that politicians think that this must be put in law, that they simply cannot help but spend money – taxpayers’ money – which they don’t have.
When this idea was proposed in January, we said that the Charter for Fiscal Responsibility was a “meaningless political gimmick”. This of course echoed Osborne’s own comments that the previous Chancellor Alistair Darling’s similar idea was “complete nonsense”.
As if to demonstrate this further, John McDonnell was supportive of Osborne’s Bill a couple of weeks ago, when he thought it might lend him economic credibility. But now he has changed his mind to suit a new political strategy.
Overall, it’s clear that this is a political move rather than one that will by itself restore the public finances to good health.
To demonstrate economic credibility, politicians should set out concrete proposals for reducing the deficit. Fiscal charters sound good, but political traps are no substitute for action.
George Osborne seemed to understand this five years ago when he tried to block Darling’s legislation, saying “in the absence of spending plans which set out a credible means by which public sector net borrowing is to be reduced, legislating to secure sound public finances is irrelevant and a distraction”.
Next month’s Spending Review is crucial. The year in which the books are forecast to balance has slipped at recent Budgets and Autumn Statements. And given our national debt has climbed to over £1.5 trillion, George Osborne must now steadfastly stick to the revised forecast of a surplus in 2019-20. This means hitting the target of reducing public spending to 36.3 per cent of GDP. This cannot slip again.
To do that, the Chancellor must do much more than eliminate wasteful spending, important though that is. It requires a fundamental re-think of the functions of Government and the abolition of entire programmes, not just salami-slicing across the board. The TPA's Spending Plan is, so far, the only fully costed set of proposals that would bring public spending under control.
Warren Buffett once suggested that running a deficit should make members of the US Congress ineligible for re-election. A bold suggestion – with similar incentives in the UK, perhaps we’d see less game-playing and more action.