New rule to force budget surplus

The Chancellor will use his Mansion House speech to confirm plans for a “balanced budget” principle policed by an independent watchdog.

Claiming the general election result represented a “comprehensive rejection of those who argued for more borrowing and more spending”, he will also challenge Labour to back the new rules in a Commons vote later this year.

The proposals for a tougher fiscal framework overseen by the Office for Budget Responsibility (OBR) were first set out by Mr Osborne in January.

The current rules introduced by the coalition require the Government to eradicate the structural deficit by the end of a rolling three-year forecast period.

But in future ministers are expected to have to ensure that they spend less than is coming into the public coffers when the economy is operating “normally” - as defined by the OBR.

Mr Osborne is due to give more details of the scheme in the Budget next month. But he will tell City figures at the Mansion House he wants a “new settlement” to protect the country from an “uncertain future”.

“I come tonight to move Britain from crisis and recovery, and towards a new settlement of responsibility and prosperity,” he will say.

“Without sound public finances there can be no lasting economic security - and without economic security there can be no lasting economic prosperity.

“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 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.

“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.”

Mr Osborne will argue that in the wake of the election it should be “accepted across the political spectrum that without sound public finances, there is no economic security for working people”.

He will add: “Therefore, in normal times, 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.

“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.

“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.”

Mr Osborne will say Britain should not “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’.”

Restating his belief that the UK can be the most prosperous major economy in the world within a generation, the Chancellor is to add: “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.”