It’s as if Ed Balls never went away. John McDonnell regularly denounced his predecessor as “austerity-lite” but his new “fiscal credibility rule” is strikingly familiar. In his speech at the RSA this morning, the shadow chancellor pledged that Labour would run a current budget surplus if elected, reduce debt as a share of GDP and only borrow to invest – a near-identical stance to that adopted by Balls in 2015 (and close that of Gordon Brown in office). “If you’re putting the rent on the credit card month after month, things need to change,” McDonnell said, adopting George Osborne’s analogy of choice. Elsewhere, he echoed Liz Kendall’s words during the Labour leadership contest, declaring that “There is nothing left-wing about ever-increasing government debts, or borrowing to cover day-to-day expenses.” What, many are asking, was the fighting all about?
McDonnell would point out, as he did at the end of his speech, that his rule comes with caveats. The most notable is that when monetary policy is “constrained” (“by hitting a lower bound as it did after the global financial crisis”), the promise of a current surplus is suspended. At such times, McDonnell said, expansionary fiscal policy would be needed “to get the economy moving again”. But with interest rates still at a record low of 0.5 per cent (and unlikely to increase significantly), it was unclear when, if ever, the rule would be operational. But since McDonnell, unusually, left without taking questions, journalists didn’t get the chance to ask him.
Similarly unclear was whether the shadow chancellor was prepared to countenance spending cuts, rather than merely tax rises, to ensure a current surplus. “I am making no announcements today about our spending commitments,” McDonnell said.
Much of the rest of the speech on boosting productivity, raising skills and increasing exports was also familiar. McDonnell even went so far as to praise Peter Mandelson, the bête noire of the Labour left, for his “prompt action” as business secretary in the aftermath of the financial crisis. With some exceptions (a new “Right to Own” for employees), many of the policies were first floated in the Miliband era (a National Investment Bank, reduced tax avoidance, increased housebuilding).
If there is a defining difference it is rhetorical. Though their rules allowed borrowing for investment, Miliband and Balls were always fearful of saying so. Labour’s profligate reputation led them to act by stealth. McDonnell has no such shame, proudly declaring his intention to invest and harnessing the support of “the Financial Times, the Economist, every single economist who appeared in front of the Treasury Select Committee”. Yet while Labour’s commitment to spend is clearer than ever, it is its willingness to save that voters need to be convinced of. McDonnell embraced that cause today but the tough questions have been deferred.
Update: One Labour MP told me in response: “John McDonnell’s speech is tonally a tribute to Ed Balls. John is either now the ultimate ‘Red Tory’ or he, Jeremy and their followers lied and should apologise for accusing the mainstream of the party for being so, because this speech is an admission that the rest of us were and are not Osborne austerians.”