Jeremy Corbyn suffered the first Commons rebellion of his leadership when 21 backbenchers rejected his anti-austerity economics and refused to vote against George Osborne’s new fiscal rules.

The relatively small rebellion was also driven by exasperation at the self-confessed mishandling of the issue by the shadow chancellor, John McDonnell.

The new charter requiring the public finances to be in overall budget surplus by 2019-20 was passed by 320 to 258. No Labour MPs voted for the chancellor’s charter since even party moderates regard the new rules as too stringent and restrictive on capital borrowing.

McDonnell, making his first appearance on the frontbench after 20 years in parliament, startled MPs by admitting he was embarrassed that he had reversed his two-week-old plan to tell Labour MPs to vote for Osborne’s charter for budget responsibility. He confessed: “I was trying to out-Osborne Osborne.”

Conceding at the outset of his speech that he was executing a U-turn, he said: “Embarrassing? Yes, of course it is, but a bit of humility amongst politicians never goes amiss. When the circumstances and judgments change, it is best to admit to it and change as well.”

In his first Commons confrontation with Osborne as shadow chancellor, McDonnell called the charter “a puerile political trap”.

He added he had first planned to vote for the charter, saying: “My initial view was to use today’s debate for a bit of traditional parliamentary knockabout and to ridicule the performance of the chancellor against his own charter.”

McDonnell said he had changed his mind on the charter as a result of receiving “professional advice”, meeting redundant Redcar steelworkers in tears, and the worsening economic headwinds facing the UK in the past fortnight.

Osborne’s aim, he said, was to show that if Labour did not vote for the charter it was a deficit denier, while if the party did back it the Tories could claim Labour was committed to support every government cut for the next five years.

He said Osborne had been involved in a successful exercise in rewriting the record. “We are ending the petty game playing and we are moving into a serious debate on how we can make this economy work for everybody.”

McDonnell said: “I want to break the stranglehold that the focus on deficits has had on the economic debate in this country in recent years. Yes, the deficit is vitally important, but we need a paradigm shift to open up the wider debate of what makes a prosperous, healthy economy in which everybody shares in the prosperity and in which everybody is secure, not just the wealthy few.

“We’ll tackle the deficit, yes. But we will not tackle the deficit on the backs of middle and low earners and especially not the poorest.”

McDonnell also questioned the true purpose of the charter. “It is increasingly clear that the charter and the fiscal mandate are not economic instruments, they are political weapons.”

Before the vote those Labour MPs who said they would abstain, notably Mike Gapes and Jamie Reed, were abused on Twitter, with accusations they were playing the Tory game and warnings they would find their local parties “pressing the deselect button”. Frank Field, the Labour MP for Birkenhead, responded to the threats by urging any MP who was deselected to immediately to trigger a byelection.

Reed had said he would abstain because “it was a pantomime proposition and parliament at its most pointless”.

Osborne tried to cause divisions in Labour ranks by citing senior Labour figures who had rejected Corbyn’s economics, claiming that the party’s leftward shift meant the Conservatives were the true workers’ party.

“To call the whole episode as a shambles is such an understatement, it is like saying the Charge of the Light Brigade did not achieve all its objectives.”

He denied the new rules in his charter were meaningless, inflexible or too demanding since the rules only propose the budget should be in overall surplus by 2019 after nine years of continuous economic growth.

Osborne had opened the debate by driving home the messages that helped the Conservatives win the election. “The questions before the house and the country are very simple. Is Britain going to pay its way in the world, live within its means, bear down on its debt so the next time the disaster strikes we are better prepared?



“Do we have the strength and determination to finish the job we have started and turn Britain around? Or are we going be profligate again, spend money we don’t have again, borrow forever, mortgage the future of children with the debts we could not pay ourselves, and consign Britain to a future of a high debt, low growth?”

Describing Labour as the party of permanent fiscal irresponsibility, he said the charter would bear down on the “irresolution of politicians who lack the discipline to control public spending and deliver growth”.

The Labour MPs who abstained were: Fiona Mactaggart, Rushanara Ali, Ian Austin, Ben Bradshaw, Adrian Bailey, Shabana Mahmood, Ann Coffey, Angela Smith, Simon Danczuk, Jamie Reed, Chris Evans, Graham Stringer, Frank Field, Gisela Stuart, Mike Gapes, Margaret Hodge, Tristram Hunt, Graham Jones, Helen Jones, Liz Kendall, Chris Leslie.

• This article was amended on 15 October 2015. An earlier version incorrectly listed Andrew Smith among the Labour MPs who abstained, where it should have said Angela Smith.