Liz Kendall has become the first candidate for the Labour leadership to say she is willing in principle to sign up George Osborne’s new fiscal rules requiring a government to aim for an overall budget surplus in normal times.
She added, however, that more detail was needed on what precisely the chancellor was proposing.
She said: “Labour should never be in favour of budget deficits for the sake of it. I have no problem aiming for a surplus. We must learn the lessons of what happened after the 2010 election and make sure our economic policy is defined by us and not by the Conservatives.
“We lost the last election because we were not trusted with the economy or with taxes and this time we have to be crystal clear what our deficit policy is as early as possible.”
She questioned whether Osborne’s new fiscal mandate would require a surplus in every year and also asked how Osborne planned to define the requirement to be in surplus in normal times.
Osborne has said the Office of Budget Responsibility will be asked to define whether the economy is in a normal or exceptional state. Kendall pointed out that it had been Labour that had been pressing for the OBR to be given a greater role.
Osborne’s plans, which are due to be set out in the emergency budget on 8 July, is designed to ensure governments must aim for a surplus on the current and capital accounts, so it goes further than the current mandate that is focused on current, or day-to-day, spending, as opposed to investment spending.
The shadow chancellor, Chris Leslie, tried to sidestep the issue by saying the proposed new fiscal mandate was a distraction from the main issue of raising productivity.
The new mandate, due to be voted on by MPs in the autumn after Labour has elected its new leader, replaces the existing fiscal mandate, prompting speculation that Osborne might try to smooth the pace of deficit reduction.
But the Treasury minister, David Gauke, said the new more ambitious mandate on surpluses covering both capital and current spending did not mean the government was abandoning its previous pre-election pledge to cut £30bn in the two years 2016-17 and 2017-18.
In the Labour leadership contest, Kendall now has 36 nominations, one more than the number needed to make it on to the ballot paper. Andy Burnham, 60 nominations, and Yvette Cooper, 43, have also secured their places but Jeremy Corbyn and Mary Creagh are struggling to secure nominations from Labour MPs. Corbyn has attracted 12 supporters, while Creagh has seven. More than 70 MPs have not yet nominated any candidate.
The rail union TSSA said Labour MPs “should have the guts” to let Corbyn on to the ballot paper in the interests of debate.
It will be a calculation for the Burnham and Cooper camps whether to lend Corbyn some of their nominations if he is just a few short of the 35 threshold. It might suit Burnham politically to have Corbyn, an anti-austerity leftwinger, on the ballot, since it prevents him being portrayed as the most leftwing candidate, making it more difficult for Cooper to come through the middle as the compromise centrist choice.
The preferential voting system should benefit the centrist candidate as long as they are not knocked out in the first round of voting.
It is widely thought Osborne is trying to keep Labour on the back foot over the deficit, the issue that caused the party serious political damage in 2015 election.
During the previous Labour leadership election in 2010, the contestants were largely distracted while the Conservatives skilfully laid out the message that Labour overspending in the middle of the last decade helped prompt the financial crash – or at least make it harder for the British economy to withstand its impact.
Meanwhile, David Miliband, brother of the defeated Labour leader Ed Miliband, said: “What I think is important for all the candidates is to reflect on the very clear lessons of two devastating electoral defeats for the Labour party in the last five years, which have come for a very clear reason.
“And the reason is that the public have concluded that instead of building on the strengths and remedying the weaknesses of the Blair years, the party has turned the page backwards rather than turning the page forwards.”
Osborne’s fiscal rule has been challenged by the independent Social Market Foundation thinktank. It says the rule is very ambitious since the occasions on which borrowing has been below zero (when the government has been taking in more than it spends) are few and far between.
It adds: “Borrowing for infrastructure investment – if done well – increases economic growth, in turn meaning that debt as a proportion of GDP can be kept down. Eliminating the ability to borrow for investment means that funds must come from current revenues. But capital projects don’t have nice, smooth cost profiles – they often involve a couple of years where costs are very high.”
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