Now Osborne wants a law to guarantee budget surplus

FUTURE governments will be legally required to run a surplus, George Osborne will announce tonight.

The Chancellor will use his annual Mansion House speech to say Britain should only go into deficit in exceptional circumstances.

The change will be voted on in the Commons later in the year – laying down the gauntlet to the new Labour leader to prove their economic credibility by voting in favour. Mr Osborne will tell financiers: ‘Governments of the Left as well as the Right should run a budget surplus to bear down on debt and prepare for an uncertain future.’

Labour’s failure to run a surplus before the global financial crisis of 2007 is seen as having contributed to the severity of the recession – and was a factor in their defeats in the last two general elections.

Mr Osborne will say governments should be bound by a new requirement to run an overall surplus in the public finances in ‘normal times’. This means that governments will only be able to be in deficit in certain circumstances, such as during a global financial crisis. The terms will be determined by the independent Office of Budget Responsibility.

If the government fails to meet the terms of the new fiscal mandate, a future Chancellor would have to go in front of the Commons to explain himself.

It will make it harder for governments to borrow to fund public services – Britain last ran a surplus in 2001.

Mr Osborne will say the UK needs to take a leaf out of Canada and Sweden’s books – countries that have learned from past recessions and have avoided getting into debt.

‘The result of this recent British election – and the comprehensive rejection of those who argued for more borrowing and more spending – gives our nation the chance to entrench a new settlement,’ he will say.

‘A settlement where it is accepted across the political spectrum that without sound public finances, there is no economic security for working people.

‘That the people who suffer when governments run unsustainable deficits are not the richest but the poorest.

‘In the Budget we will bring forward this strong new fiscal framework to entrench this permanent commitment to that surplus, and the budget responsibility it represents.

‘I trust this new settlement for responsible public finances will now command broad support. With our national debt unsustainably high, and with the uncertainty about what the world economy will throw at us in the coming years, we must now fix the roof while the sun is shining.’

Mr Osborne will also use his Mansion House speech to lay out how shares in state-owned RBS bank will be sold and 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 – who include the Chancellor and the Governor of the Bank of England – were established by William Pitt the Younger in 1786 to reduce the national debt and last met in October 1860.