Labour 'has long way to go' to regain public trust on the economy
Shadow chancellor John McDonnell has admitted Labour has "a long way to go" to regain public trust on the economy, as he unveiled a new "fiscal credibility rule" which will guide future policies on taxation and spending.
The rule would bar a future Labour government from borrowing to pay.for day-to-day spending and would require it to ensure that the national debt falls as a percentage of GDP over the course of each Parliament.
But it leaves open the option of borrowing to pay for investment in infrastructure like roads, railways, broadband and flood defences, which sparked Conservative claims that a Labour administration would plunge the country into billions of pounds more debt.
The shadow chancellor said Labour would reserve the right to suspend its rule in times of crisis when interest rates are so low that they cannot be cut further to provide stimulus to the economy.
Launching the new rule in a speech in central London, Mr McDonnell said that Chancellor George Osborne's economic recovery since the crash of 2008 was "built on sand" and promised Labour would offer "a radical break with the past" on economic policy.
"We must now rewrite the rules on how our economy operates. The old rules have failed," he said, citing growing inequality and a failure to provide the funding for infrastructure projects announced by the Government.
In an attempt to cast off Labour's reputation for high spending and high borrowing, Mr McDonnell pledged that all future spending commitments will by "judged by how they fit with our fiscal credibility rule".
The Office for Budget Responsibility would be properly resourced to police the rule, and would report directly to Parliament rather than to the Treasury, he said.
Mr McDonnell said: "Labour faces its most important fight for a generation and it is about regaining the public's trust on the public finances.
"We have a long way to go before we can regain that trust we lost after the global financial crisis of 2008 which happened on Labour's watch. There is no silver bullet.
"The first stage of that is to lay out our framework for overall fiscal policy, to show that we can be trusted, that we take seriously our responsibility as stewards of the nation's finances."
Mr McDonnell - who took no questions after delivering his speech - acknowledged that Labour had relied too heavily on the Private Finance Initiative and tax revenues from a booming financial sector to fund investment during its time in power from 1997-2010.
"The old rules meant relying too much on tax revenues from financial services, and too much on expensive funding schemes like PFI," he said.
"We didn't do enough to clamp down on tax avoiders.
"We should show how we can account for every penny in tax revenue raised, and every penny spent.
"There is nothing left-wing about ever-increasing government debts, or borrowing to cover day-to-day."
But, in a possible sign that he does not want to write off New Labour's record altogether, he paid tribute to Lord Mandelson for his intervention to prop up the automotive industry following the crash.
Speaking five days ahead of Mr Osborne's Budget, Mr McDonnell denounced the Chancellor's economic rule to run a surplus every year "in normal times", which he said was "designed solely with the Tory leadership contest in mind".
He said: "George Osbonre will be presenting his Budget next week. It is an opportunity to turn things round. Instead, we can expect more of the same from the Chancellor - more wheezes, more short-term political fixes."
Accusing the Chancellor of "sacrificing the bold, necessary action we need for the sake of his political career", Mr McDonnell called on Mr Osborne to deliver a Budget that is "about fairness and about the future."
Liberal Democrat Treasury spokeswoman Baroness Kramer said: "Labour's attempt at regaining fiscal credibility is doomed to fail. There is still no sign that the Labour leadership are willing to make the tough decisions needed to manage our economy.
"Their fiscal rule says nothing about the possibility of huge tax rises and gives no confidence they understand the vital role of business in supporting our economy.
"Just as the Conservatives are making the cynical political choice to continue with austerity long after it is necessary, Labour is choosing to promise the Earth without a credible plan of where the money comes from".
Taxpayers' Alliance chief executive Jonathan Isaby said: "Taxpayers are tired of empty platitudes from politicians who provide very little in the way of serious policies to deal with the huge national debt.
"The Opposition has an extremely important task at hand to hold the Government to account in its failure to balance the books and make the savings taxpayers desperately need. Politicians from all parties must accept that tough action is needed to balance the nation's books and ease the burden on current and future taxpayers."
Lord Livermore, who served as an adviser in the New Labour governments of Tony Blair and Gordon Brown and was director of the party's unsuccessful 2015 general election campaign, said Mr McDonnell's rule amounted to a repeat of the policy offered by Ed Miliband and rejected by voters.
The Labour peer told BBC Radio 4's World At One: "The emphasis in the Labour Party should be on moving forward from 2015, because I think everyone recognises that economic credibility was one of the big reasons why we lost in 2015.
"Simply announcing the same policy that Labour had then is not learning the lessons of 2015 - rather it will lead to the same outcome as in 2015. A policy that lacked credibility then is unlikely to give us credibility now."
Lord Livermore added: "Albert Einstein defined madness as doing the same thing over and over and expecting a different outcome. This announcement, I'm afraid, doesn't move us on from where we were in 2015. We should be learning from our mistakes, not repeating them."