Like Gordon Brown before him, George Osborne delights in laying traps for his political opponents. His proposed new budget surplus law, which will force future governments to pay down debt “in normal times”, is a classic of the genre. Having conceded, to varying degress, that Labour should not have run a deficit before the crash, the party’s leadership candidates will now be challenged to say whether they support the Chancellor’s measure. Should they vote in favour of the plan, Labour will be forced to pledge to fund new investment through higher taxes, allowing the Tories to run a 1992-style “bombshell” campaign, or commit to even deeper cuts in current spending.
There is no policy merit in Osborne’s proposal. Governments can currently borrow at ultra-low rates to fund growth-stimulating infrastructure projects. But Osborne, a fiscal dogmatist, is determined not to take advantage of this historic opportunity. To extend his favoured household analogy, he has declined to take out a national mortgage even when offered exceptionally generous terms. While it is prudent for governments to run surpluses in times of growth (as a reserve fund against economic shocks), it is not always possible or even desirable. Only in seven of the last 50 years has the UK done so (including three times during Brown’s chancellorship). Should the private sector be unwilling or unable to invest, the state must intervene as a spender of last resort.
Content from our partners
