Osborne’s fiscal charter passes as Corbyn fails test of authority

Jim Pickard and George Parker
Labour party leader Jeremy Corbyn addresses the TUC Conference at The Brighton Centre on September 15, 2015 in Brighton, England. It was Mr Corbyn's first major speech since becoming leader of the party at the weekend and he received a standing ovation from the members of the TUC.
Mary Turner | Getty Images

Jeremy Corbyn's first attempt to stamp his authority on Labour MPs came unstuck on Wednesday as rebel MPs ignored his demand that they oppose George Osborne's budget surplus charter.

Mr Osborne's proposals were passed by a clear 320 votes to 258 — despite the Scottish National party, Liberal Democrats and Greens joining forces with Mr Corbyn to resist them.

Mr Corbyn had told his MPs to oppose the chancellor's fiscal charter, which commits future governments to running surpluses in "normal times"; Mr Osborne aims to balance the budget by 2019.

Read MorePiketty and Stiglitz backing UK's left-wing leader

Mr Corbyn's decision to impose a three-line whip on Labour MPs was shrugged off by rebels, who noted that their new leader holds the record for disobeying party orders in Commons votes.

Twenty-one Labour MPs abstained — attending the debate but not voting — while another 16 were authorised absences.

The rebellion added to the sense of "shambles" described by Labour MPs as Mr Corbyn and his shadow chancellor John McDonnell tried and failed to navigate a clearly signposted political trap laid by Mr Osborne.

Corbyn's efforts to rebuild fractured Labour party

Liz Kendall, who challenged Mr Corbyn for the leadership, Chris Leslie, former shadow chancellor, and Jamie Reed, another former shadow minister, were among those announcing before the vote that they would abstain.

Mr Osborne set up Wednesday's vote as a test of the fiscal credentials of Mr Corbyn and Mr McDonnell; the Labour leadership initially said they would back the fiscal charter but then reversed that position this week.

Mr McDonnell admitted during the debate, no fewer than five times, that the U-turn was politically "embarrassing" but said "a bit of humility among politicians does not go amiss".

The shadow chancellor said that Labour would dissociate itself from a plan that was merely cover for spending cuts and an "assault" on the welfare state: the charter was a "puerile political stunt", he told MPs.

More from the Financial Times:

Labour flounders on policy
Fiscal charter divides UK politicians
McDonnell advisers back U-turn

The proposed rules were not "economic instruments but political weapons", he argued, repeating his argument that he had changed his opinion because of a change in the economic outlook and the plight of steelworkers in Redcar. "I want to break the stranglehold that the focus on deficits has had on the economic debate in this country in recent years," he said.

John Mann, a backbench Labour MP, said the charter was a "gimmick" that did not have the support of the CBI, the City of London or even the Bank of England.

But Mr Osborne said it was not a political gimmick to have "sound public finances".

We should give Corbyn a chance: Labour MP

The UK must "live within its means", he told the chamber, to better resist future economic shocks. If Britain could not get control of its deficit and debt by 2019 — after nine years of successive growth — when could it ever do so, he asked.

Labour was "profligate", wanting to spend money the country did not have and "borrow for ever", he claimed.

David Cameron had earlier exploited Labour awkwardness at prime minister's questions, telling Labour MPs: "Those of you who believe in a strong and stable government, in strong and stable economy, come and join us in the lobbies this evening."

Most Labour MPs on Wednesday supported the eventual decision taken by Mr Corbyn and Mr McDonnell to oppose the charter, which could stop a future Labour government borrowing to invest.

But others believe Labour has to prove it can run sound public finances, even if they dislike the "stunt" pulled by Mr Osborne to paint the party as "deficit deniers".

Read MoreThe UK's second party has a new socialist leader

Mr McDonnell prompted outrage when he announced his U-turn at a meeting of the parliamentary Labour party on Monday night. MPs castigated the shadow chancellor over several issues. "It was like Reservoir Dogs, starring The Muppets," said one MP.

Mr Corbyn, who has endured a rocky few first weeks as leader of the opposition, was widely seen to have performed well at his second session of prime minister's questions, where he probed Mr Cameron over tax credits and housing.

He told the Commons he had received thousands of questions from members of the public about cuts to tax credits, pressing Mr Cameron on the impact that this would have on a working single mother with a disabled child.

The prime minister replied that the government was lifting the minimum wage, providing more childcare for working parents and cutting social rents.

Although Mr Corbyn's low key style proved effective and did something to lift the spirits of his demoralised MPs, the Labour benches remained ominously silent when their new leader took to his feet.