Fiscal charter vote: Labour leadership's first real test

The Chancellor's economic plans could be Jeremy Corbyn's biggest test as Labour leader after the party's dramatic u-turn on the fiscal charter.

MPs are set to debate the policy on Wednesday evening and vote on the plan which could guarantee a budget surplus every year.

ITV News Deputy Political Editor, Chris Ship reports:

Shadow Chancellor John McDonnell's reversed stance on the policy prompted George Osborne to urge Labour MPs to rebel and vote for the Conservative's plans.

Several Labour MPs, including former Labour leader candidate Liz Kendall, Welsh MP Chris Evans and Copeland MP Jamie Reed, are expected to abstain against Labour's stance.

The fiscal charter will set the government's spending in 'normal economic times'. Credit: PA

What is the debate about?

The fiscal charter will affect the government's long-term spending. MPs will vote on whether to set up the charter which will mean, if approved:

  • by 2020 the public sector budget will be in surplus, meaning that it spends less than it receives in taxes or receipts.

  • measures would apply in "normal economic times", which would be when the economy is growing by 1% a year or more.

  • the independent watchdog, the Office for Budget Responsibility (OBR) would be responsible for implementing the changes.

Who else opposes the plans?

Some economists have questioned the wisdom of Osborne's plan.

In June, 77 economists, including leading academics from Britain and abroad, signed a letter which dismissed the fiscal charter as "nothing more than an attempt to out-manoeuvre his opponents" and having no basis in economics.

There is also a suggestion Corbyn was warned by Scottish Labour leader Kezia Dugdale that they risked undermining the party's anti-austerity message if they voted with the government, playing into the hands of the SNP who are voting against.

John McDonnell's u-turn caused clashes within Labour. Credit: PA

What happens if there is a significant rebellion?

A significant rebellion could be highly damaging for Mr Corbyn. If there are shadow ministers among the rebels, he will have to decide whether or not to sack them - hardly a choice he would relish so early in his leadership.

What else could cause Labour MPs to rebel?

The fiscal charter is not the only subject that could cause divisions between front-line Labour MPs and backbenchers. A potentially explosive clash is looming over the renewal of the Trident nuclear deterrent.