There’s a great piece in today’s FT on why the government’s fiscal charter is a really stupid idea and why the Labour Party messed up by even considering supporting it.
Firstly, there is the principle of the thing:
Declaratory laws merit no place in British fiscal management. Governments are elected to change the law.
Governments put their spending plans before the electorate and then we vote on them. That’s what we have elections for. There are very good reasons why a government should sometimes borrow money and sometimes run a surplus. We don’t know what the circumstances might be in future but it is for the voters to decide how their government should spend. They might get it wrong but that is their choice. Who is to say that it must always be right to run a surplus? A similar criticism could be levelled at the law committing the UK to spend 0.7 percent of GDP on international aid. It might be an honourable thing to do but it should be up to future electorates to decide.
Last time a government attempted something like this, one MP was particularly scathing, dismissing the bill as “vacuous and irrelevant”:
[I]t must be the biggest load of nonsense that this Government have had the audacity to present to Parliament in this Session. Quite frankly, I do not think the Bill is the idea of the Chancellor of the Exchequer or any of his Treasury Ministers, or indeed of any official in the Treasury. It was dreamt up by the Schools Secretary and the Prime Minister when they were trying to think of something to say on the “Andrew Marr Show”.
He then quoted MPC member Willem Buiter:
“Fiscal responsibility acts are instruments of the fiscally irresponsible to con the public.”
That MP was one George Osborne. He was right then and any half decent opposition would have thrown these words right back at him.
But, while arguments about the principles behind the fiscal charter are interesting, its implications for spending in this parliament are quite clear. Agreeing to it would mean signing up to an absolute surplus by 2019-20. That’s why I was baffled when John McDonnell said he would support the charter and it seems a lot of Labour MPs were too.
For the government to completely eliminate the deficit by 2019-20 it must cut spending severely or raise taxes. An opposition that had backed the fiscal charter would therefore be left with only one answer to government cuts: higher taxes. To cover the government’s £30 billion s[ending cuts would require an increase of around 8p on basic income tax, or its equivalent. Every time the opposition put forward a case for investment in public services, having ruled out further borrowing, it would have to name a tax increase to fund it.
This would be a strange move, just at the point when Labour’s existing policy, dealing with the day-to-day deficit while still borrowing to invest in infrastructure, is being urged on governments by the credit ratings agencies and the IMF.
I would be surprised if any opposition MPs vote for the fiscal charter today. It is wrong in principle and it will severely limit the opposition’s room for manoeuvre over the next five years. Which, of course, is what it was meant to do. The main plank of the Conservative programme is eliminating the public deficit. It is the policy that defines David Cameron’s government. By signing up to it, the Labour Party would be effectively abandoning any serious opposition for the rest of this parliament. Any opposition MP that votes for it might as well just take the next five years off.