John McDonnell has devised a fiscal policy that betters George Osborne’s

The carving out of capital spending from current spending in the five-year target for budget surplus will be welcomed by virtually all independent economists

John McDonnell speaking at the 'Building an Economy to Serve People and Not Profit', an alternative economics event in Manchester, in January (Corbis)

Rules, they say, are meant to be broken.

That’s certainly been the experience of the past three decades of British economic policymaking. Margaret Thatcher started out by trying to target the growth of the money supply though a “Medium Term Financial Strategy”. Nigel Lawson famously tried to achieve domestic stability by getting sterling to “shadow” the deutsche mark. Then we had Gordon Brown’s “golden rule”. And the Coalition had its own “fiscal mandate” in 2010, which George Osborne has now tightened up considerably.

They were all very different in their technical specifics. But what they all had in common is that they all, eventually, got broken in one way or another.

So how does Labour’s latest proposal measure up? The answer is pretty well. The carving out of capital spending from current spending in the five-year target for budget surplus will be welcomed by virtually all independent economists, since well-chosen infrastructure spending pays for itself. Indeed this is what the Coalition’s own rule did until Mr Osborne decided he wanted an overall surplus every year.

Labour’s debt-to-GDP target is looser, with debt merely falling over a parliament under its plan rather than every year under Osborne’s. This should remove the pressure on chancellors to slash spending at very short notice to produce a minor fall in the debt ratio – something that Osborne is widely expected to do in next week’s Budget.

The most interesting element of Labour’s plan is the idea of getting the Bank of England to effectively decide when the fiscal rules can be suspended by stating that interest rates are at the effective “lower bound”.

This might be where technical problems emerge. What if the MPC is split over whether rates can go lower? Or what if the MPC does believe rates can go no further, but a majority of members are still worried about irresponsible fiscal laxity by the government of the day? Might the Bank raise rates to counteract that? It’s possible to imagine a scenario where fiscal policy is pushing one way but monetary policy pulling in the other.

Yet that’s always a risk when a central bank is independent, regardless of any fiscal rules. And the key question is whether a rule is broadly well designed and economically sensible. And, in this respect, what Labour has come up with certainly seems to be an improvement on the Government’s.