On Wednesday, parliament votes on George Osborne’s new fiscal charter. This obscure decision has major consequences for the political debate. Wednesday’s will be the fourth such vote in five years – thanks to the chancellor’s missed targets and obsessive politicking.

This latest vote – freed of coalition – provides not for a current budget surplus but an overall surplus with a deadline of 2019/20.

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Last month, John McDonnell, the new shadow chancellor, told the Guardian that Labour would be supporting this charter, ostensibly to reassure the public on Labour spending.

It was a bold first intervention given his opposition to Labour’s pre-election shadow chancellor, Ed Balls, seeking to do the same – to reassure the public on spending.

McDonnell was pledging to support something far more pro-austerity than anything the pre-2015 Labour party stood for.

This week, at the last possible moment, and in a chaotic parliamentary Labour party meeting, he has reversed that decision.

This is no surprise. Working with Balls I watched this debate closely. The global economic situation and the positions taken during the Labour leadership election meant that Labour’s pledge to support George Osborne’s fiscal rule was baffling.

The government’s cuts to tax credits and public services coming in the spending review will see a surplus in 2019 with little wiggle room.

The rule is permanent: in future, the government cannot borrow at all in “normal times”, even for investment. Even if it brings a medium-term net benefit to the country or exchequer.

The International Monetary Fund has cut growth forecasts – the real risk is global stagnation, potentially worse. Investors keen for a safe harbour will lend money to the government at barely any interest.

In the west, the response to the financial crisis leaves monetary policy largely exhausted. A fiscal boost – focused on productive investment – should not be ruled out.

The UK has particular problems too: productivity lags behind our G7 competitors more than at any point since 1991. On energy, broadband and transport we lag behind with infrastructure needs we cannot hope to meet. Growth is anaemic, given what should be spare capacity, post-crisis. Investment to address these issues would boost growth and secure long-term productivity gains.

Instead, while hard-hat photo opportunities abound, government capital investment is more than a quarter below pre-crisis levels as a share of GDP. Osborne’s charter makes this error permanent.

The public does want a balanced approach and would support a trusted alternative. Business leaders worry about the global economy and would support infrastructure and skills investment. Few economists think the chancellor’s fiscal rule makes sense.

There is space for the opposition to argue that a permanent overall surplus by 2019 is not what the economy needs and is too inflexible for the future.

The dilemma is that the election showed that the public already believes Labour will spend too much. So if the party was to make the case for more investment it needs to balance that with tough and consistent reassurance on discipline in day-to-day spending.

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Instead, following the shadow chancellor’s announcement, Labour was left with the worst of both worlds.

The last charter in January was for a current, not absolute surplus, and it had no specific date attached, so Labour was able to vote for it.

This current charter enacts a fiscal policy far tougher than that contained in Labour’s 2015 manifesto. Voting for it was not consistent with a slowing of fiscal consolidation.

You don’t need to agree with the strategy to see that if you want to pursue Jeremy Corbyn’s anti-austerity approach, to say you would vote for this charter is a colossal blunder.

And yet the leader and shadow chancellor, despite pledging to vote for it, continued to participate in generalised protests against “austerity”.

These two approaches were in fatal contradiction. Every time Labour argued for an economic alternative of investment in infrastructure and warned of global economic headwinds, the vote on the charter would be thrown in its face.

There will be an inquest as to why such a damaging “U-turn” was made. Some will blame pressure from the left. I think that in the end common sense prevailed.

In announcing his initial decision McDonnell made two revealing arguments. He claimed the charter did not define the “normal times” when borrowing was forbidden. And that unlike Osborne he would achieve a surplus by “investing” to grow. But the charter does define “normal times” and prevents borrowing for investment.

It is quite a claim to say that McDonnell announced that he would vote for something that he had not read or perhaps misunderstood. But when his conference speech just two days later failed to explain how he could ever meet this surplus rule, I and others feared he hadn’t realised the hole he had dug himself.

It seems that at some point in the last two weeks this became clear to him. The result is that he has been forced to backtrack on the first major decision he has ever taken.

A shadow chancellor’s fiscal stance is fundamental to credibility and trust. This kind of chaos less than a month into the job is the kind of blow even significant political figures struggle to recover from.