John McDonnell says Labour will now vote against charter requiring government to run budget surplus within three years during ‘normal times’

John McDonnell, the shadow chancellor, has made a last minute U-turn by announcing that Labour will vote against the government’s charter of fiscal responsibility on Wednesday.

He told the Guardian in an interview during the weekend of the Labour conference that the party would back the fiscal rules despite Jeremy Corbyn having been elected as leader on an anti-austerity ticket. McDonnell said he was committed to balancing the books even though he did not agree with many of the charter’s specific objectives.

Some Labour MPs were openly planning to rebel and vote against the charter including the Treasury select committee member Helen Goodman. There had also been opposition to his stance from the Scottish National party and members of his newly appointed economic advisory council, who were baffled as to how McDonnell could square his anti-austerity economics with support for the revised charter drawn up by the chancellor, George Osborne.

The charter requires the government to run a budget surplus within three years during “normal times”, when there is no economic crisis.



In a letter sent to all Labour MPs, McDonnell explains the volte-face by saying “matters have moved on” since his initial reaction. He cities a series of reports in the past fortnight “highlighting the economic challenges facing the global economy as a result of the slowdown in emerging markets”.

McDonnell adds: “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.

“I have consulted members of the economic advisory council … 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.”

He says that view has been broadly supported by current and former shadow ministers as well as other members of the parliamentary Labour party (PLP).

But with McDonnell forced to retract his first big political judgment since becoming shadow chancellor, there was disbelief among some Labour MPs that he had ever got himself into such a mess, saying it would always have been better to oppose the charter rather than send out complex signals about the need to bring the current account into balance.

McDonnell was told at a Parliamentary Labour party meeting by Labour MPs that his approach had been a shambles and there had not been the remotest attempt to consult Labour MPs about the change.

The Guardian view on Labour’s fiscal policy: mayhem, muddle, but the right call in the end | Editorial Read more

Labour MPs left the meeting describing the policy U-turn as a shambles, and Corbyn’s spokesman confirmed the major change in economic policy had been agreed without a collective meeting of the shadow cabinet, but instead McDonnell ringing individual shadow cabinet members.

In his letter, McDonnell said he had initially regarded Osborne’s charter, and the votes in the Commons approving its wording, as “little more than political game playing” by the government.

He added: “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.”

The former shadow chancellor Chris Leslie reportedly told the private weekly PLP meeting that there were finely balanced arguments on either side on how to vote on the charter on fiscal rules but McDonnell had lost credibility by advancing both sides of the argument in the space of the two weeks.



John Mann, the Labour MP for Bassetlaw, predicted McDonnell would be shredded by both the Tories and the SNP if he went into the Commons chamber with his new policy.

Osborne said on Monday night: “Labour’s economic policy has lurched from chaos to incredibility. Two weeks ago, ‎they said they were going to vote for a surplus – now we know they want to keep on borrowing forever. That would be a grave threat to the economic security of working people‎.‎”

