Labour has lost chance to regain trust on economy after fiscal U-turn, MPs warn

Labour has forfeited the chance to regain voters’ trust on the economy after its U-turn over the government’s fiscal charter, the party’s MPs have warned the day of a Commons vote.

The vote on Wednesday evening is likely to see a small group of Labour MPs abstaining, the first revolt of Jeremy Corbyn’s leadership, but most will back the decision to oppose a charter they believe would excessively tie the hand of a future Labour government.

The charter requires the government to achieve an overall budget surplus by 2019–20 and for a surplus to be retained in normal times.

Many MPs who will follow a three-line whip believe the shadow chancellor, John McDonnell, has mishandled the issue badly by first saying he would vote to support the charter, and then in a last-minute change of heart telling MPs they should oppose it on the basis that it is a gimmick. The U-turn was supported by many of his informal group of economic advisers, as well as leaders of the Scottish Labour party.

McDonnell admitted he had probably confused MPs with his tactical changes, but did win the support of senior shadow cabinet figures such as Andy Burnham.

In a statement, Chris Evans, the MP for Islwyn in south Wales, said: “Beyond the issue that once again has allowed [George] Osborne to claim the mantle of fiscal responsibility, this U-turn has created uncertainty over our position. We cannot win back trust by shifting a public position just two weeks after it was set. Rather than using the debate on the fiscal charter to highlight Osborne’s failure to balance the books and setting out Labour’s alternative, we are instead debating internal politics.”

Evans added that Labour should support surpluses in principle, so long as certain tests were set. He also asked how McDonnell could have said a fortnight ago that voting against the charter was “a trap so obvious that you can write it blindfold”.

Matt Wrack, the general secretary of the Fire Brigades Union, which is to reaffiliate with the Labour party in the next few months, urged Labour MPs to support the party leadership. Speaking in Westminster, he said: “I don’t want to pry into the business of the parliamentary Labour party too much, but people may have seen the press reports of what went on in the parliamentary Labour party this week and the attacks that were made on the Corbyn leadership.

“On behalf of the executive council, and I hope on behalf of everyone, I would say to those people who are trying to put the knife into Jeremy Corbyn and John McDonnell they need to wind their necks in and shut up and abide by the democratic decision of Labour party members, affiliated trade unionists and supporters and also in non-affiliated trade unions like us, like PCS, like the RMT. John and Jeremy have stood by those unions through thick and thin.”

Speaking before the vote, Seema Malhotra, the shadow chief secretary to the Treasury, said: “The new overall surplus target (rather than current budget surplus) has been criticised by expert voices even from outside the Labour party for three main reasons.

“Firstly, his [Osborne’s] rule leaves governments inflexible to changing economic circumstances, secondly it will potentially result in households, consumers and business borrowing more to bring balance to the economy, and thirdly it does not allow for borrowing for capital investment, particularly when the cost of capital is so low. Indeed, when the Treasury select committee took evidence in the summer, they struggled to find any supportive voices for George Osborne’s new charter.”

McDonnell also sought to explain his thinking: “Initially I thought it best to treat the vote with the contempt it deserved, vote for the charter, avoid claims of deficit denial and move on,” he said. “The gathering economic storm clouds and the implications of the charter in terms of cuts to services, tax credits cuts for millions of families, and constraining investment for the future have become much clearer and have persuaded me Labour should not be associated with it at all.”

Powered by article was written by Patrick Wintour and Rajeev Syal, for on Wednesday 14th October 2015 17.03 Europe/ © Guardian News and Media Limited 2010