Shadow chancellor pledges 'fair and responsible' deficit reduction

Shadow chancellor John McDonnell is to announce a "fiscal credibility rule" which will require a future Labour government to eliminate the state deficit "in a fair and responsible manner".

Mr McDonnell will use a high-profile economic speech five days ahead of next week's Budget to pledge that a Labour administration would reduce the current deficit by keeping its day-to-day spending below the amount taken in from taxes and other revenues.

And he said that Labour would cut the country's overall public debt - currently around £1.5 trillion - over the life of the next parliament and in every parliament after that.

The shadow chancellor's initiative, being launched in a speech in central London, appears designed to shore up Labour's reputation for responsibility with public spending, which has come under repeated attack by Conservatives.

But it leaves open the option of borrowing money to pay for investment in infrastructure like roads, railways, homes and power stations, which is classed as capital spending rather than current.

By contrast, Chancellor George Osborne has put in place rules saying that a Conservative government will create an overall budget surplus "in normal times".

Mr McDonnell is expected to say that the fiscal credibility rule "will ensure that Labour eliminates the Government's deficit in a fair and responsible manner".

He will say: "That is the centrepiece of our rule. A future Labour government will be bound by its discipline to reduce the current deficit.

"It will be bound to reduce the government debt burden over the life of the next parliament, and every parliament thereafter.

"It will be economically robust, devised in consultation with some of the world's leading economists to be effective in whatever circumstances an uncertain global economy may throw up.

"And to ensure that this fiscal credibility rule is scrupulously enforced and that future governments are held accountable, we will reinforce the independence of the Office for Budget Responsibility."

Apparently anticipating that his rule will face resistance from the left of the party, where activists are lobbying for a Labour government to reverse Conservative spending cuts, Mr McDonnell is expected to insist that "there is nothing left-wing about excessive spending ... nothing socialist about running up too much debt."

And he will say: "When governments do not manage their finances responsibly, it is ordinary working people who eventually suffer.

"When governments try to disguise their spending, it is accountability and democracy that suffer.

"The fiscal credibility rule is not about making spending commitments. It is about providing a framework for the responsible management of public finances.

"We must be a party that thinks first about how we earn money, not only how we spend money."

Responding to the suggestion that Labour would borrow money to pay for infrastructure investment, Chief Secretary to the Treasury Greg Hands said: "Labour spent and borrowed too much last time they were in power.

"It's clear they've not learned their lesson and can't be trusted with the economy.

"At a time of uncertainty in the global economy, Labour is a serious threat to our economic security and it's working people who would pay the price."