- Labour would reserve right to suspend fiscal targets if needed
- Budget-surplus rule introduced with Cameron succession in mind
Labour would rewrite the rules of U.K. fiscal policy so that the government works with the central bank to stimulate growth, Britain’s main opposition party said on Friday.
Less than a week before Conservative Chancellor of the Exchequer George Osborne sets out his budget to Parliament, his Labour shadow, John McDonnell, attacked his decision to legally bind the government to delivering a budget surplus by the end of the decade.
“We undertake the right to suspend our targets so that monetary policy and fiscal policy can work together” when times required it, McDonnell said in a speech in London. “Osborne’s fiscal rule is designed solely with the Tory leadership contest in mind.”
Osborne has staked his reputation --and his chances of succeeding David Cameron as prime minister -- on his sound management of the economy, with many blaming Labour’s election loss last May on voters’ lack of confidence in the party’s fiscal credibility.
Now, faced with growing threats, Osborne has been criticized by economists and the opposition alike for setting inflexible fiscal targets that leave the Bank of England with the task of stimulating growth.
“In defiance of the growing consensus in the economics profession, he will continue to pursue spending cuts,” McDonnell said. Priority should be given to boosting the underlying drivers of growth because without productivity improvements “we cannot hope over the long term to improve living standards.”
Labour has been criticized for lurching to the left since Jeremy Corbyn became leader in September pledging to nationalize the railways and fund infrastructure projects with money printed by the BOE. In an attempt to boost the party’s credibility on the economy, McDonnell has promised "iron discipline" on spending and Labour has hired a panel of international economists, including Nobel Prize winner Josef Stiglitz, to advise it on policy.
“Now is the time to break with the failed approaches taken,” McDonnell said. Labour would commit to ensuring that government debt as a share of gross domestic product was smaller at the end of a parliamentary term than it was at the start, he said.
Spending commitments would be set through a “democratic” process.