Chancellor George Osborne has announced plans to enshrine in law a commitment to maintaining a budget surplus during ‘normal times’.
The move, which could heavily impact major infrastructure investment, will be voted on by MPs later this year, Mr Osborne revealed.
The Office for Budget Responsibility (OBR) will be drafted in as the independent watchdog responsible for policing the new rules, with OBR officials expected to have a key role in deciding when the government should be allowed to spend more than it is taking in revenue.
Taking advantage of Labour’s economic trust issues, and the Conservatives impressive election victory, Mr Osborne sad in his Mansion House Speech: ‘The result of this recent British election – and the comprehensive rejection of those who argued for more borrowing and more spending – gives our nation the chance to entrench a new settlement.
‘A settlement where it is accepted across the political spectrum that without sound public finances, there is no economic security for working people, that the people who suffer when governments run unsustainable deficits are not the richest but the poorest and that therefore, in normal times, governments of the left as well as the right should run a budget surplus to bear down on debt and prepare for an uncertain future.’
He added that in the Budget of 8 July he would ‘bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents’.
John Cridland, CBI director-general said: ‘This will create a platform for the fiscal discipline required to keep national debt as a share of GDP on a downward trajectory and provide the flexibility to deal with economic shocks.
‘Underpinned by clear fiscal rules, we must get on top of the public finances in a way that is growth-friendly. The heavy lifting must come from savings to current spending so we need a step-change in the approach to public service reforms, while prioritising growth boosting spending, such as capital investment and innovation.’
However the move has been criticised by both the right and left wing press as being politically motivated and impractical.
