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  1. Business
  2. Economics
28 November 2014

How Osborne watered down his deficit reduction vote

The Chancellor has shifted his focus from an absolute surplus to a current surplus. 

By George Eaton

No Autumn Statement or Budget passes without George Osborne laying a trap for Labour. Delivering the former on Wednesday, Osborne the Chancellor is expected to announce plans to stage a vote on his pledge to eliminate the structural current deficit by 2017-18. The aim is to force Labour, which has promised to eradicate the current deficit by 2020 at the latest (giving it more flexibility than Osborne), to oppose the commitment and be exposed as fiscally “irresponsible”. Osborne hopes to persuade the Lib Dems, who support the 2017-18 target but want tax rises to play a continued role in deficit reduction, to join forces with the Tories, reanimating the two-against-one dynamic that enabled the coalition to trash Labour’s economic record in the months after the 2010 general election. 

But while this political battle plays out, it’s worth noting how Osborne has quietly shifted his stance. Back in March, when he delivered the Budget, the Chancellor suggested that a vote would be held on his pledge to achieve an absolute budget surplus by the end of the next parliament (first announced at the Conservative conference in 2013). He said:

We must bring our national debt substantially down. Analysis published today shows just running a balanced current budget does not secure that.

Instead, Britain needs to run an absolute surplus in good years.

We will fix the roof when the sun is shining – to protect Britain from future storms.

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So I can confirm that in addition to the cuts this year and next, there will be cuts in the next Parliament too.

To lock in our country’s commitment to this path of deficit reduction we will seek the support of Parliament in a vote.

And I will bring forward a new Charter for Budget Responsibility this autumn.

Yet rather than inviting MPs to support his target of an overall surplus, Osborne is now set to propose the weaker one of eliminating the structural current deficit by 2017-18. He has political reasons for doing so: the Lib Dems, for instance, do not support the former aim (they would allow borrowing for investment) and by avoiding enshrining the pledge in law he leaves room for its potential abandonment at a later date (most economists regard it as undeliverable given the Tories’ £7.2bn tax cuts pledge). But whatever the justification, the Chancellor won’t be as fiscally tough as we were led to believe in March. 

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