Shadow Chancellor John McDonnell yesterday sent a letter to Labour MPs informing them that the party would now be voting against the Charter for Budget Responsibility on Wednesday, having previously stated they would support it. The letter has been passed on to LabourList and can be read in full here:

Dear Colleague,

Charter for Budget Responsibility and the Fiscal Mandate

On Wednesday the vote will take place on an order to adopt the Government’s charter for Budget Responsibility including the fiscal mandate.

There is a significant difference between the charter and the mandate which the Labour Party agreed to support in January in that the Government’s proposal to require a continuing surplus on public sector net borrowing constrains the ability to borrow for future capital investment, a key plank of Labour’s growth strategy and one supported by the great majority of mainstream economists.

The consistent failure of George Osborne to abide by and achieve his economic targets over the last five years has led to a growing sense of incredulity over the economic basis for the charter process he has adopted.

Most have interpreted this exercise as little more than political game playing.

In my initial public comments and in my speech to Labour Party conference I made it clear that we had no time for these political games and would move on to a serious discussion about the future of our economy, including a review of our economic institutions.

At that stage, my approach was to show the inherent weaknesses of the Chancellor’s approach, the charter and its various get out clauses.

I suggested we vote for it nevertheless in support of the principle of tackling the deficit but to demonstrate that our approach would not involve austerity measures and we would seek to exclude capital investment from its severe and arbitrary constraints.

Because the debate on Wednesday is upon an order, we are unable to table a reasoned amendment to make that position clear. Indeed the initial clerk’s advice is that it may not be eligible even for publication.

I believe that since my initial reaction matters have moved on and we should now vote against the order.

The tone of our debate now also has to shift to a much more serious analysis of what our economy is likely to face in the coming year.

In the last fortnight there have been a series of reports highlighting the economic challenges facing the global economy as a result of the slowdown in emerging markets. These have included warnings from the International Monetary Fund’s latest financial stability report, the Bank of England chief economist, Andy Haldane, and the former Director of President Obama’s National Economic Council, Lawrence Summers.

I have consulted members of the economic advisory council, which has been established to advise us on economic trends and policy, and the general view is the same. Although we need to continue to bear down on the deficit, they believe that this is not a time in any way to undermine investment for growth strategies. That view has also been broadly supported in my discussion with other Shadow Cabinet and former Shadow Cabinet members and as well as colleagues from across the PLP.

There are other reasons for reconsideration of our position. As the nature and scale of the cuts Osborne is planning are emerging there is a growing reaction not just in our communities but even within the Conservative Party. The divisions over the cuts in tax credits to working families are just the first example of what we can expect as the cuts in other departments are exposed and the failure to find additional resources to bridge the growing expenditure gap in service areas like the NHS is revealed.

So I believe that we need to underline our position as an anti-austerity party by voting against the Charter on Wednesday. We will make clear our commitment to reducing the deficit in a fair and balanced way by publishing for the debate our own statement on budget responsibility. We will set out our plan for tackling the deficit not through punishing the most vulnerable and damaging our public services but by ending the unfair tax cuts to the wealthy, tackling tax evasion and investing for growth.

For all these reasons our position will be to vote against the Charter for Budget Responsibility on Wednesday and promote our own fairer alternative.

Please don’t hesitate to contact me if you would like to discuss this further.

Yours,

John

John McDonnell MP

Shadow Chancellor