George Osborne to entrench cuts with Budget rule
In his Mansion House speech later today, Mr Osborne will announce the creation of a new fiscal mandate which will entrench the cuts made in bringing down the deficit and force ministers to only run a deficit in times of crisis.
Mr Osborne, who is attempting to push through £30 billion of cuts in the next two years, will ask MPs to back his vision of future spending in a vote in the Commons after he has delivered his emergency Budget next month.
The move will infuriate the SNP, as the party won 56 of Scotland’s 59 seats on a campaign calling for a reduction in austerity and £180bn of extra borrowing by 2020.
And the speech comes less than a week after Mr Osborne antagonised many across different parties by announcing £3bn of extra cuts, including £107 million for Scotland.
Concerns have even been raised in his own party by Tory backbenchers over what many believe is his desire to slash defence spending to below the Nato 2 per cent of GDP threshold, and cut the police budget.
But with the Tories’ new House of Commons majority of 12, Mr Osborne hopes to grab the initiative to reshape spending in the UK and create a much smaller state with reduced departmental budgets.
In calling for a permanent change in the debate on financial responsibility, the Chancellor will cite international examples, such as Canada and Sweden, to show that he believes the only reliable way to deal with those risks and achieve meaningful and permanent debt reduction is to operate a balanced budget or surplus rule.
He will argue Canada and Sweden provide examples of countries that have learned the lesson of the need to fix the roof while the sun is shining, following their respective crises in the 1990s.
In both cases, the results of this fiscal strategy are clear – Sweden and Canada have had among the strongest public finances of any developed economy during the past eight years and neither has had to make large cuts to public spending following the global economic crisis.
In a statement of intent on bringing down the UK’s spiralling National Debt, Mr Osborne will also announce that next month, for the first time in more than 150 years, the Committee of the Commissioners for the Reduction of the National Debt will formally meet.
These commissioners include the Chancellor of the Exchequer, the governor and deputy governors of the Bank of England, the Lord Chief Justice and the Speaker of the House of Commons.
The roles were established by William Pitt the Younger to reduce the national debt – the commissioners last met in October 1860.
In his speech to leading figures in the City of London, Mr Osborne will offer a new settlement for the UK.
He will say: “I come tonight to move Britain from crisis and recovery, and towards a new settlement of responsibility and prosperity.
“A new settlement for the British economy. A new settlement for the way we manage our public finances.
“A new settlement in what we ask of your great industry, financial services.
“A new settlement in Britain’s relationship with our partners in the European Union.”
He will warn that without sound finances the UK can have no lasting economic security or prosperity.
He will add: “So the new settlement for the British economy I talk about tonight starts with a new settlement in the way we manage our national finances.
“With our national debt unsustainably high, and with the uncertainly about what the world economy will throw at us in the coming years, we must now fix the roof while the sun is shining.
“Indeed, we should now aim for a permanent change in our political debate and our approach to fiscal responsibility – just as they have done in recent years in countries like Sweden and Canada.”
Drawing on the Tories’ mandate in the recent general election, he will claim that the result gave a “comprehensive rejection of those who argued for more borrowing and more spending – and gives our nation the chance to entrench a new settlement”.
He will promise to use the Budget in July to bring forward a strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents.
Mr Osborne will say: “This fiscal framework will be voted on by the House of Commons later this year, and assessed by the Office for Budget Responsibility we created. I trust this new settlement for responsible public finances will now command broad support.”
He will appeal for the country not to give up on the future, saying: “I don’t want to look on from the sidelines as other parts of the world pioneer new science, promote new business, take forward new art and say to my two young children: that used to be us; that used to be Britain.
“I believe it is within Britain’s reach to become the most prosperous of all the world’s major economies in the coming generation – and for that prosperity to be shared widely across our one nation.”
He will conclude: “Working together, achieving these new settlements for our public finances, for our financial services, and for fairness in Europe, will help us secure that bright future for us all.”