George Osborne: Future budgets must have surpluses

Future governments should be obliged to run annual budget surpluses every year to protect the economy from future global shocks, George Osborne said today, as he outlined Tory plans for a new fiscal rule should his party be re-elected in May.

In a lecture to the Royal Economic Society, Mr Osborne also claimed that with prudent policies there was no reason why the UK could not become “the most prosperous of any major economy” with 20 years: “It is within the power of my generation to achieve this – if we have the discipline and the ambition,” he said.

Mr Osborne said in the future ministers should no longer have discretion to set budgets that spent more than they brought in in taxes.

Instead they could only borrow more if wider economic circumstances made a balanced budget impossible – and then only with the permission of the independent Office of Budget Responsibility.

His remarks will be seen as a further attempt to contrast his party’s position on the economy with that of Labour, which the Tories claim will irresponsibly increase borrowing to pay for additional spending.

Contrasting his position with the former Labour Chancellor Gordon Brown’s claim that he had abolished boom and bust Mr Osborne said politicians “must never be deluded into thinking you can abolish the economic cycle”.

But he said governments had the power to curb Britain’s vulnerability to such fluctuations if they reduced the overall amount the country owed in good years in order to absorb the shocks of bad years.

“I believe that, once the public finances are close to balance, we should introduce this fundamental and simple principle for fiscal policy in the UK: in normal times the Government should aim to run an overall budget surplus each and every year,” he said.

Mr Osborne cited Canada and Sweden as countries that put in place balanced budget or surplus rules after financial and fiscal crises.