04/07/2016 03:52 BST | Updated 04/07/2017 06:12 BST

Osborne Has Finally Bowed to Continued Labour Pressure

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At the end of a week that has been dominated by Westminster rumour and gossip, Friday saw a major reversal by George Osborne which will have real consequences for millions of people up and down the country.

In a statement, the Chancellor said that - following the Brexit vote - he would be abandoning his plan for a budget surplus in 2019/20. This is a huge victory for all of us who have been calling for him to scrap his discredited Fiscal Charter, warning not only of the unnecessary hardship and misery it would entail but also that it was fundamentally unfit for purpose, lacked economic credibility and wouldn't last.

One of the first things Labour under Jeremy Corbyn did was to oppose the Fiscal Charter when Osborne brought it before Parliament. The Tories pushed it through despite our warnings and those of every reputable economist, but the wheels started to come off within months.

Despite the windfalls from changes to tax forecast modelling, their Spending Review in November last year went ahead with cuts to in-work benefits which would see some low-income families losing over £3,000 a year. Yet more deep cuts to spending on transport, local government and climate change set the scene for even more pressure on stretched public services and local councils.

In February, the Chancellor started laying the ground for the Budget by warning of storm clouds on the horizon of the global economy. When the Budget came around, it emerged that two of his three fiscal targets - those on debt and the welfare cap - had been missed already.

And when the Office for Budget Responsibility published their latest forecasts, it became clear that the main driver for the disappointing outlook was not global uncertainty but the UK's rapidly deteriorating productivity forecasts.

With a record of zero out of two, the only remaining plank of Osborne's strategy was to achieve a budget surplus by 2020. We always suspected that this would prove a tall order, and last week's Brexit vote has just banged the final nail into the coffin of an approach that the Tory Party - including Gove, May and the rest - defended to the hilt less than a year ago. Osborne should not be using Brexit as an excuse for an approach that was already failing, just as his previous promises to close the deficit by 201 failed.

Both the Chancellor and the Prime Minister must shoulder the blame for Remain's failure to win the referendum, and attention will rightly focus on Osborne's scaremongering and promises of extra austerity if Britain voted to Leave.

People don't like being threatened - especially if they don't believe the threats - and I warned at the time of the dangers of Project Fear backfiring.

So I welcome the Chancellor's u-turn, as I welcome his decision not to impose the threatened punishment austerity budget, but I am angry that it has taken blunders of this magnitude to force him to do what should have been obvious.

Labour under Jeremy Corbyn has consistently advocated a different approach. A programme for reducing the government deficit through growth and investment, rather than the cuts which have proved so counter-productive.

I spoke yesterday about the alternative needed now, in the light of the EU vote, to stabilise the economy and give reassurances to people and businesses. The government now has no excuse to shirk their responsibilities for investing in the future of the economy and helping to deal with some of the uncertainty they have helped to create.

I also spoke about the principles which need to underpin any discussions about withdrawal from the EU: guarantees on employment rights, rights for existing migrants, access to the single market, continuing involvement in the European Investment Bank and 'passporting' rights for financial companies.

Labour will never agree to a proposal for EU withdrawal which weakens these rights and leaves us worse off.

We know that the population has voted to leave the European Union but we now need to do more work to find out which elements of our European relationship we want to preserve, and which must be changed.

It's incumbent now that all of the candidates for the Conservative Party leadership also make it clear where they stand on the major issues.

Playing politics with serious economic matters has been the downfall of the Chancellor's fiscal policy. Now, with the whole country's future at stake, it's time for those charged with running the country to do better.

John McDonnell is the Shadow Chancellor and the Labour MP for Hayes and Harlington