The chancellor has announced that he will attempt to bind future governments to maintaining a budget surplus when the economy is growing.
In his annual Mansion House speech, George Osborne outlined his plan to ensure governments run a surplus in "normal" times.
Mr Osborne first proposed the changes to fiscal policy in January.
In the same speech he also confirmed that the government plans to sell its stake in the Royal Bank of Scotland.
The announcement comes amid concerns over the national debt, which has doubled since the financial crisis.
The plan would legally prevent future governments from spending more than they receive in tax revenue when the economy is growing.
"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," Mr Osborne said in his speech in London.
The Office for Budget Responsibility (OBR), an independent watchdog, will be responsible for policing the new rules.
The OBR is also expected to have the power to decide when the government should be able to spend more than it is taking in revenue, for example, when the country is in a recession.
Analysis: BBC political editor Nick Robinson
Why pass a law to force yourself to so something you already intend to do? That was my first reaction to the news that the chancellor plans to legislate to oblige him to run a budget surplus in "normal times" - in other words to raise more in tax than he spends when the economy is not in recession.
So, is this announcement pure politics? After all, George Osborne knows that the first rule of political strategy is to "define your opponent before they can define themselves".
By announcing this now, but delaying a vote on it until the autumn, he is ensuring that the argument about spending will dominate the Labour leadership campaign and that the new Labour leader will have to decide whether to vote for or against balancing the books.
Currently, the government is committed to balancing day-to-day spending by eliminating the structural deficit by the end of the 2017-18 financial year.
But earlier this week ratings agency Moody's cast doubt on the chancellor's ability to balance the books by that time, and said it "expects a more moderate reduction in the budget deficit, to 1.2% of GDP by the end of this parliament" in 2020.
On BBC Radio 4's Today programme Danny Gabay, co-director of Fathom Consulting and formerly of the Bank of England, said imposing such a fiscal rule on future government was neither feasible or desirable.
He added: "Given that the last five years was the tightest fiscal settlement that we've seen in modern times... it was extremely hard on spending, and yet the level of debt continued to go up.
"You can sense his [Mr Osborne's] frustration, but does it make sense to take it out on the rest of us? No, not really."
What is the National debt?
The National Debt simply refers to the amount of money owed by the UK government. This is the debt that has been built up over many years by many governments - the running total if you like.
In April this year the Office for National Statistics (ONS) said the National Debt - or public sector net debt as it calls it - stood at £1.48 trillion, equivalent to 80.4% of the UK's annual economic output.
In 2008, the debt was around £600bn, or 42% of economic output.
The deficit, in this instance borrowing, is the difference between government revenues and what it spends.
Of course, the fact that the government is spending more than it earns from the economy and us means it has to borrow money from the international markets, which adds to the national debt.
Borrowing money also increases the amount of interest the government has to pay out, which, as it is still running a deficit, means it has to borrow more money to pay that interest, which again increases the national debt.
If the government is borrowing less than it receives in revenue, it is running a surplus. By running a surplus, the government can chip away at the overall debt.
Mr Osborne argued that the Conservative party's recent election victory and the country's "comprehensive rejection of those who argued for more borrowing and more spending" means a change in approach is necessary.
"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," he said.
A House of Commons vote on Mr Osborne's proposal is expected to take place later this year.
The move by Mr Osborne will be viewed by many as an attempt to secure his legacy for balancing the books - a pledge he has made repeatedly since becoming chancellor in 2010.
The chancellor also announced that the Committee of the Commissioners for the Reduction of the National Debt - a group set up to repair the economic damage of the Napoleonic wars - will meet again for the first time in more than 150 years.
The commissioners - which include the chancellor and the governor and deputy governors of the Bank of England - last met in October 1860.