Osborne's budget surplus trap will force Labour to finally offer economic clarity

The party will need to decide whether to make the case for investment or to embrace fiscal conservatism. 

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Like Gordon Brown before him, George Osborne delights in laying traps for his political opponents. His proposed new budget surplus law, which will force future governments to pay down debt "in normal times", is a classic of the genre. Having conceded, to varying degress, that Labour should not have run a deficit before the crash, the party's leadership candidates will now be challenged to say whether they support the Chancellor's measure. Should they vote in favour of the plan, Labour will be forced to pledge to fund new investment through higher taxes, allowing the Tories to run a 1992-style "bombshell" campaign, or commit to even deeper cuts in current spending.

There is no policy merit in Osborne's proposal. Governments can currently borrow at ultra-low rates to fund growth-stimulating infrastructure projects. But Osborne, a fiscal dogmatist, is determined not to take advantage of this historic opportunity. To extend his favoured household analogy, he has declined to take out a national mortgage even when offered exceptionally generous terms. While it is prudent for governments to run surpluses in times of growth (as a reserve fund against economic shocks), it is not always possible or even desirable. Only in seven of the last 50 years has the UK done so (including three times during Brown's chancellorship). Should the private sector be unwilling or unable to invest, the state must intervene as a spender of last resort. 

Labour will wait to see the detail of the Chancellor's proposal in the Budget on 8 July before saying whether it will support or oppose the policy (most crucially, the definition of "normal times"). Shadow chancellor Chris Leslie said: "We need to deal with the deficit, and no-one would disagree with a surplus when economic circumstances allow or that investment is needed if the economy is in a downturn. But rather than giving speeches full of distraction techniques the Chancellor should be focusing on driving up productivity, setting out how he will pay for his multi-billion-pound election pledges and explaining who will bear the burden of the still unexplained cuts planned.

"Sensible reductions in public spending and a balanced approach are needed - but the public need straight answers from the Chancellor now rather than politics."

But assuming it does not abstain from voting, it will need to take a side. This will force it to confront the unresolved dilemmas of Ed Miliband's leadership. While sensibly leaving room to borrow to invest, Labour almost never made the case for doing so, for fear of deepening its profligate reputation. But this policy stance, along with its failure to tackle the "overspending" question, also made it an unconvincing advocate for fiscal conservatism. If Osborne's gambit forces it to finally offer clarity, rather than ambiguity, it may yet have something to thank him for. 

George Eaton is assistant editor of the New Statesman.