In his speech tomorrow at the Fabian Society conference, Ed Balls will commit Labour to achieving a current budget surplus in the next parliament. He will say:
I am today announcing a binding fiscal commitment. The next Labour government will balance the books and deliver a surplus on the current budget and falling national debt in the next Parliament. So my message to my party and the country is this: where this government has failed, we will finish the job.
We will abolish the discredited idea of rolling five year targets and legislate for our tough fiscal rules within 12 months of the general election. Tough fiscal rules which will be independently audited by the Office for Budget Responsibility.
We will get the current budget into surplus as soon as possible in the next Parliament. How fast we can go will depend on the state of the economy and public finances we inherit.
At first sight, this might appear identical to the recent pledge by George Osborne to run a surplus by the end of the next parliament (in 2018-19 at present). But there is one crucial difference. While Osborne’s promise applies to total government spending, Balls’s only applies to current spending (day-to-day spending on public services, for instance teachers’ salaries and hospital drugs). This leaves open the option of Labour borrowing to fund additional capital spending (investment in assets such as housing and roads). A Balls source told me tonight that the party would wait until closer to the election, when economic circumstances are clearer, before deciding whether to do so.
As Balls said in my recent interview with him, “In the speech I gave at Reuters in the summer, I said, and Ed and I both said, that’s a decision we should make much closer to the election when we’ve got more information about what the state of the economy is going to be. So we’ve been very clear, no more borrowing for day-to-day spending, but on the capital side that’s something that we’re going to continue to look at. I’m not going to rule it out, but I’m also not going to say now that it’s definitely the right thing to do.”
In adopting this stance, Balls has revived the “golden rule” favoured by his mentor Gordon Brown, which stated that “over the economic cycle the government will borrow only to invest and that current spending will be met from taxation” (or, in these austere times, from cuts elsewhere. The big question for Labour is what balance the party will adopt betwen tax rises and cuts).
This is undoubtedly the right policy decision but expect the Tories to respond by declaring that it destroys Labour’s ostensible commitment to fiscal responsibility by creating the possibility of “more borrowing”. Labour sources are keen to point out that the accompanying pledge to reduce the national debt as a share of GDP means that the party won’t be able to ramp up capital spending to unsustainable levels but the onus will be on it to make the case for investment if it chooses to borrow. Polls show that a majority of voters are in favour of borrowing more to fund spending in areas such as housing but, for fear of being portrayed as profligate, Labour has yet to win this argument with the Tories.
While it’s Balls’s surplus pledge that will dominate discussion tonight, I’m told that the speech will not be solely focused on the deficit and will include more on the reshaped economy promised by Ed Miliband in his speech last week; there will be one new unbriefed announcement.
P.S. If you’re going along to the Fabian conference, I’ll be speaking at 1:45pm on “who will win in 2015?”