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MPs pass charter that will force permanent public budget surplus

MPs passed the updated Charter for Budget Responsibility by 320 votes to 258 yesterday (14 October), which means the public sector must now legally run a budget surplus every year once finances stabilise.

Chancellor George Osborne, who put forward the proposition, believes the charter will provide economic stability and security to Britain from the time Whitehall starts collecting more in taxes than it spends – a goal he hopes to reach by 2019-20.

During the heated debate at the Commons, he said: “After all that Britain has been through, it is remarkable that the proposition in [the charter] should even be contentious. It states that now the economy is growing we should be reducing our exorbitant debts, and that we should do that each year by reducing the deficit until we eliminate it altogether and run a surplus.

“Once we have achieved that surplus, in normal times we should continue to raise more than we spend and set aside money for when the rainy days come. It is as simple as that: we should fix the roof when the sun is shining.”

What he defines as normal times is legislatively defined as when there is a real gross domestic product growth of at least 1%.

Although the charter will legally force future governments to comply with its proposals, the Office for Budget Responsibility will police the rules.

If it believes that a “significant negative shock” to the UK economy has or will take place and will restrict growth, it holds the power to call off the surplus retention.

Despite passing comfortably, the charter faced much opposition from the Labour, Liberal Democrat and SNP parties, most of whom voted against it or abstained.

Shadow chancellor John McDonnell said during the debate: “The worst false economy is the failure to invest. This will be a direct result of government policy embedded in this charter, with its limits on all public sector borrowing. Economists from across the spectrum have written and commented on the need for investment for the future.

“It is incomprehensible for the chancellor to rule out the government playing a role in building our future. For him to constrain himself from doing so in the future, no matter what the business case for a project, has no basis in economic theory or experience.

“It is increasingly clear that the charter and the fiscal mandate are not economic instruments, but political weapons.”

(Top image c. M. Holland)


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