Most economists support Labour opposition to the ‘economically illiterate’ fiscal charter. John McDonnell and Jeremy Corbyn should frame a clear alternative to austerity, as promised, not backtrack

Jeremy Corbyn was elected Labour leader on an unequivocal anti-austerity platform. Shadow chancellor John McDonnell’s announcement that the party will back George Osborne’s fiscal charter has therefore caused alarm among Corbyn’s supporters. So what is Labour’s position on austerity and the deficit?

MPs will vote on Osborne’s fiscal charter later this year. The charter commits the government to eliminate the deficit by the end of this parliament and to run a surplus in all subsequent years unless economic growth falls below 1%.

The policy has been widely attacked as economically illiterate by economists and commentators across the political spectrum. History shows there is no chance the commitment will be fulfilled: the government has run a surplus in only eight of the last 60 years. Osborne’s record on cutting the deficit – his stated overriding policy aim – is dismal. Why then has Corbyn’s Labour party signed up to this indefensible policy?

McDonnell has been sending mixed messages. In the pre-conference announcement, he is quoted as saying: “We will support the charter on the basis we are going to want to balance the books, we do want to live within our means and we will tackle the deficit.” But in his conference speech McDonnell referred to the charter as “a political stunt. A trap for us to fall into.”

It was also reported that McDonnell will sign Labour up to balancing the books on current expenditures only and will exempt borrowing for investment. But Osborne’s fiscal charter explicitly sets targets for the overall government budget. Partial agreement is not an option without amendments to the bill.

A balanced current budget is a more realistic proposition than an overall budget surplus. It is certainly a reasonable aim – but legally committing to such a target makes no sense. It has been achieved in less than 20 of the last 60 years. If economic activity and employment are to be maintained at acceptable levels, it will be missed again.

McDonnell’s proposal for a balanced current deficit accompanied by borrowing to fund investment is all but indistinguishable from the “austerity-lite” policy put forward by Ed Balls during the general election campaign.

Aside from the fact that the proposed targets will inevitably be missed, there is a deeper problem with proposals of this sort. They implicitly accept the false narrative, so carefully cultivated by the Conservatives, that the deficit – and therefore Labour – were responsible for the financial crisis. This is the danger of adopting the language of “balanced books” and “living within our means”. Winning an argument about “deficit denial” will then be all but impossible.

Corbyn distinguished himself during the leadership campaign by confronting this narrative full-on. It would be a grave error if, having won an overwhelming mandate on this basis, he and his team were now to backtrack.

It is obvious why they are tempted to do so. We are repeatedly told that Labour lost the election because they weren’t trusted on the economy. But Labour made no attempt to challenge the Conservative narrative; they effectively conceded the charge of responsibility for the financial crisis.

Corbyn – who we were also told had no chance of winning – was the first to clearly and explicitly rebut that charge.

There is another danger with McDonnell’s current strategy: it involves a change in the meaning of “austerity”. The correct definition is a macroeconomic one: refusal to use the debt-issuing power of the government as a tool to achieve full employment.

In switching to a story about balanced books, defence of this crucial function of government is abandoned and austerity v anti-austerity becomes a debate purely about the size of government.

In opposing Osborne’s fiscal proposals, Labour enjoy the support of much of the economics profession. Even the economists who signed a letter to the Financial Times opposing Corbyn’s economic policies conceded that borrowing to fund “much-needed investment” makes sense at a time of low interest rates.

Labour should use this support to their advantage and be clear in putting forward an alternative to austerity. They should keep their message clear and frame the debate in their own terms. If not, they fall into Osborne’s trap.

• Jo Michell is a senior lecturer in economics at the University of the West of England