By Richard Johnstone | 14 January 2015
MPs have approved an update to the coalition government’s Charter for Budget Responsibility, which forecasts that a further £30bn of public spending cuts or tax increases will be needed to close the current deficit.
The charter commits the Treasury to balancing the cyclically adjusted current budget over a three-year period at every Budget. This means, for example, that at Budget 2015 Chancellor George Osborne will need to show that forecast spending will be balanced by 2017/18.
A new supplementary target has also been set to get public sector debt falling as a percentage of gross domestic product by 2016/17. This replaces the existing supplementary target that debt should be falling as a percentage of GDP by 2015/16, which the government has not been on track to meet since the 2012 Autumn Statement.
The charter was passed by 515 votes to 18 after Labour, which has pledged to run a surplus by the end of the next parliament on day-to-day spending, said it was able to back these fiscal rules.
Chancellor George Osborne told MPs the charter set out the next steps needed to improve the public finances.
‘People will remember the fiscal crisis facing this country five years ago: a deficit that stood at more than 10% of our national income; a government borrowing £1 in every £4 they spent; a Treasury whose departing chief secretary left a note saying simply that there was no money left.’
Shadow chancellor Ed Balls said that as Labour had pledged to get the current budget into surplus and national debt falling as soon as possible, ‘the charter is fully consistent with our position, so on that basis we will support the motion today’.
He added: ‘The chancellor promised in the last Budget a vote to balance the overall budget. Now the government has done a u-turn and is proposing a vote on the current budget excluding capital investment, which is the same measure we have been committed to for three years.
‘Also, when we study the fine print of this fiscal mandate, we find that it turns out to be even more different from the old one than I expected. The old fiscal mandate talked about having a target to balance the current Budget in 2015/16 and a target to have the national debt falling. We can see why this chancellor has got a little worried about setting targets because they have not gone very well. It turns out that in this new document it has been downgraded from a target to an aim.’
TaxPayers' Alliance chief executive Jonathan Isaby said the charter amounted to ‘a meaningless political gimmick… that serves only to remind taxpayers how dramatically the chancellor has missed his own original targets’.
He added: ‘If politicians spent half as much time explaining how they would cut the deficit as they do blowing hot air about it, taxpayers would have a lot more faith in Westminster.’
