United Kingdom: A Charter for a Smaller State

While mainstream media have been preoccupied with the recent votes in the House of Commons and Lords on the reform of tax credits and English votes for English laws, they seemed to have overlooked a massive political decision that could have repercussions on our economic policy for years to come.  The UK parliament recently backed Chancellor George Osborne’s Charter for Budget Responsibility, despite opposition from Labour, the SNP and many anti-austerity groups.  They have argued that it is essentially a political stunt with much wider implications as it curtails government spending in times of prosperity and could subsequently inhibit economic growth and development.

 “The truth is this measure has nothing to do with improving our economic performance it is an excuse to ease the political programme of shrinking the state.”Helen Goodman MP

First proposed by the Chancellor in June, the charter for budget responsibility essentially commits the government to legally create a budget surplus within 3 years of taking office.  This continues the approach that George Osborne has followed since being Shadow Chancellor when he proposed the creation of the Office for Budget Responsibility, a body that produces independent reports and forecasts on the economy and the government’s performance against fiscal targets.  In 2011, the newly introduced Budget Responsibility and National Audit act secured the OBRs position while also putting economic constraints on the government’s economic policy and spending plans.  The amended 2015 act continues this trend, setting out the governments mandate for fiscal policy and budget responsibility, creating proposals to achieve a balanced budget by 2019.

Labour initially backed Osborne’s proposals to much criticism from the left of the party, with shadow Chancellor John McDonnell even backing the charter at the Labour party conference.  McDonnell explained that his change of opinion came from meeting redundant Redcar steel workers and also seeking advice from various economists who had all rebuked the Chancellor’s economic approach.  The vote has been particularly damaging to the party with 21 MPs rebelling against the whip, choosing to abstain on voting against the government’s proposals.  This has been the first rebellion against Jeremy Corbyn and indicates the massive challenge of selling anti-austerity economics to the right of the Labour party.  Since its inception, the charter was heavy scrutinised by the SNP, the Greens and anti-austerity groups who believe that it will be damaging to the economy.  Corbyns initial wavering on the issue only makes him look weak to the electorate and less credible and viable as a future Prime Minster, which presumably was George Osborne’s intention.

 “This might be clever politics, but it is staggeringly bad economics. The Chancellor is incredibly irresponsible to imply that borrowing is always bad. If we borrow to invest, we increase jobs, stabilise the economy and increase tax revenues. That is good for the economy, not bad for it.”Caroline Lucas MP

Caroline Lucas makes a valid point.  The charter seems to advocate conservative ideology above the stability of the economy.  If an economic situation develops and it requires stimulus or investment then the economy should be flexible enough to respond.  But under Osborne’s proposals borrowing is looked upon in a negative way and is actively discouraged.

Many have argued that the policy is no more than a political stunt designed embarrass Labour and also further the Conservative party’s political agenda for a smaller state.  Osborne set a cunning political trap, if Labour opposed the charter, the Conservatives could have claimed fiscal incompetence, if they agreed with the proposal then they faced backlash from the electorate and those who voted for Jeremy Corbyn standing on an anti austerity platform.  John McDonnell himself described the charter as a “political weapon” rather than the economic instrument that Osborne has made it out to be.

There are those who say that the charter is essentially meaningless as the next or future government could potentially repeal it.  However, there are wider implications of the charter and its potential effect on the state.  With tightening budgets and a legal requirement to limit borrowing and spending, it challenges the post war political consensus between the main parties which could result in the dismantling of the NHS to the private sector, or even further reductions to the welfare state.  While a future government may decide to repeal the act, the ideology behind the charter will have repercussions on future policy.  If the Conservatives were to win another term in government, this policy could be indicative of the approach that they would take and could mark a substantive change in the future of British policy making.

Alistair Hill is a guest contributor at GPPW.

Cover image: The Weekly Bull under a CC BY-NC-ND 2.0 Generic Creative Commons license

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