Time to compare and contrast, and look ahead. Our new Prime Minister had already made it clear that George Osborne’s commitment to a budget surplus by 2020 had been dustbinned, and this is what new Chancellor Philip Hammond said this morning on the BBC Today programme, about economic policy:
“Our economy will change as we go forward in the future and it will require a different set of parameters to measure success. Of course we have got to reduce the deficit further but looking at how and when and at what pace we do that and how we measure our progress in doing that is something that we now need to consider in light of the new circumstances that the economy is facing.”
What Corbyn said
Compare this with what Jeremy Corbyn said - in not dissimilar vein - a year ago in July 2015, as part of his Labour leadership campaign (in his "The Economy 2020")
“We all want the deficit closed on the current budget, but there was no need to try to do it within an artificial five years or even the extra five years George Osborne mapped out two weeks ago. If the deficit has been closed by 2020 and the economy is growing, then Labour should not run a current budget deficit – but we should borrow to invest in our future prosperity.”
Corbyn went on to say this:
“If Osborne’s forecasts are right there won’t be a deficit by 2020, but if - like last time - he is proved wrong and he only again manages to halve the deficit then I make this pledge: Labour will close the current budget deficit through building a strong growing economy that works for all. We will not do it by increasing poverty.”
For these departures from conservative fiscal orthodoxy, Corbyn and Labour under his leadership have been under constant attack from the Conservatives; notably George Osborne who (for example) on 14 October 2015 in the debate on the Fiscal Charter said
"They are becoming the permanent party of fiscal irresponsibility, the party of never-ending borrowing, the party that would run a deficit forever, a Labour party that is a standing threat to the economic security of the working people of this country."
(Remember too that 21 Labour MPs abstained on the vote rather than vote to oppose the Charter).
Fight burning injustices - what now for austerity?
We await with interest just how far Mr Hammond will be willing to go in giving effect to Theresa May’s commitment, announced on the steps of Number 10:
"We must fight the burning injustices. We must make Britain a country that works for everyone.”
In truth, we’re not optimistic that we have seen the end of austerity, but the opportunity for a fresh start now exists. The false claim that “there is no money” has at least, and at last, been exposed for all to see, in the rapid junking of Mr Osborne's plans.
Charter for Budget Responsibility
But meanwhile, Mr Osborne’s Charter for Budget Responsibility remains in place, endorsed by the Conservative MPs, and has legal effect under the Budget Responsibility and National Audit Act 2011. This puts a duty on the government, until it is replaced, to maintain “a target for a surplus on public sector net borrowing by the end of 2019-20” (though as we have always pointed out, the surplus under the rule could be £1 not £10 billion!).
Moreover, “until 2019-20, the Treasury’s mandate for fiscal policy is supplemented by: a target for public sector net debt as a percentage of GDP to be falling in each year”.
There will be two alternatives for the new government – and the choice will show us how much of Ms May’s “one nation” language is pure rhetoric, and how much for real. The position of the Labour Party (assuming it still exists) will also be interesting to follow given its own relatively orthodox fiscal rules (announced recently by the Shadow Chancellor John McDonnell).
Option 1 - keep Osborne's fiscal rules
First, the government can choose to keep Osborne’s rules, and await the Office for Budget Responsibility’s assessment of whether there is a “negative shock” that enables the rules to be suspended for a while but otherwise kept in place. In this case, the quest for annual “budget surpluses” and ever more cuts in public services (shrinking the state) will remain. The right-wing economic and political orthodoxy of the Cameron/Osborne/Coalition governments will be retained or even tightened. Burning injustices will be intensified, not fought.
A shock is defined in the rules as “real GDP growth of less than 1% on a rolling 4 quarter on 4 quarter basis.” The targets are suspended If the OBR assess that the shock has occurred, is occurring, or will occur during the forecast period.
Option 2 - break free from Osborne's rules
Second, and far more desirable, the government can recognize that since the financial crisis of 2008/9, the world has been in a new economic era which requires the ditching of old orthodoxies. It can and should choose to radically change (or even abolish!) the present fiscal rules.
Such a choice would reflect the fact that interest rates are at historic lows, and that (unless and until the economy is working at full capacity) reasonable deficits incurred for economically and socially useful purposes – in particular investment (whether or not strictly defined as capital) in our country and its people – are beneficial not damaging.
If the government were to choose the second route, we would indeed be in a different, post-Osborne, era. But don't hold your breath.