Chancellor Rishi Sunak has announced a general election for July 4. But the ruling Conservative Party, in power since 2010, is trailing far behind in the opinion polls. What do we know about the economic policies of the Labour Party, which is expected to take power?
“Given this backdrop, we don't expect the UK election to be a market-moving event unless there is a major surprise,” said Trevor Greetham, head of multi-asset at Royal London Asset Management.
But a change of government would have huge implications for the economy and financial markets, not to mention the savers, investors and pensioners who depend on the transparency (or lack thereof) produced from Whitehall.
So each party's manifesto will be scrutinized by policy experts, lobbyists and savers looking for signs of a major overhaul of fiscal and monetary policy. Until we see the documents, it's hard to say which party is “better” for a UK economy that's been in a slow-growth, high-inflation recession since the pandemic and is still dealing with the legacy of Brexit.
Moreover, due to a long-standing obsession with value for taxpayers and the influence of Chancellor Liz Truss's so-called mini-budget, manifesto “costing” is now a firmly established part of the UK political dialogue. It is clear that such documents are as much a vehicle for attacking political parties as they are a call to action and a vision for change.
The Labour Party says “we have changed”. Will that change anything?
Rishi Sunak, the former chancellor of the exchequer and responsible for the UK economy, was quick to cite his own record during the pandemic in a speech on Wednesday, claiming his Labour colleagues have “no plan” for growth.
Fortunately, this comes amid improving economic conditions: The UK is out of recession, inflation is running at 2.3% instead of 11.1%, the job market is generally strong, and the stock market is at an all-time high. Even the International Monetary Fund expects growth to return in 2025.
Still, there are big political issues. Mr Sunak is under pressure over Britain's highest tax burden since World War Two. Britain's public services are under enormous strain. Mortgage rates are at their lowest since the 2008 financial crisis.
The Labour Party has been working on addressing this issue for a long time, much of which has been influenced by what is seen as the legacy of Jeremy Corbyn, but not only that: long before Corbyn became leader, the party sometimes struggled to present itself as “pro-business.” It is not surprising that the party has already published a blueprint for the City of London, a key “constituency” that has traditionally been seen as leaning to the Conservatives.
At the centre of this effort is the shadow chancellor, Rachel Reeves, whose only major gaffe so far appears to have been an incident in which she was alleged to have plagiarised parts of a book she wrote about female economists.
Reeves, a former Bank of England economist, proposed capping corporation tax rates at the current 25 percent and removing the power of the exchequer to scrap fiscal rules, and promised not to re-cap bankers' bonuses, itself a controversial measure.
The bonus cap, introduced by the previous Labour government as a populist policy after the global financial crisis, allowed banks to get around it by increasing basic salaries. Labour's own legacy is difficult to address here, but ultimately it's as much a matter of appearances as whether the party is actually uncomfortable with the people earning big money in Canary Wharf.
And then there are the boardrooms, still dominated by men, still trying to find ways to contribute to Britain's economic growth, and still under huge regulatory pressure.
During the 2019 election, party leaders were dismissive of talk of wealth taxes and nationalisation, but over time the public discourse has become somewhat more receptive to such ideas. The right-wing media was keen to portray Jeremy Corbyn and shadow chancellor John McDonnell as subversives of Marxism. Naturally, the financial industry was not too keen on their ideas.
But with talk already of renationalising Thames Water in 2024 and concerns (to say the least) about dividend payments to irresponsible managers at the heart of the debate, Labour may have more room to manoeuvre than is assumed here.
Will a Labour government cut taxes?
But none of it is necessarily comprehensive. Indeed, it's fair to say that Labour remains deliberately vague. One of its few firm promises is to impose VAT on private school fees. You can't form a government on that alone.
Labour has already faced criticism for watering down plans to spend £28 billion a year on green industries, but is sticking to its idea of setting up a state-owned renewable energy generator, Great British Energy, to be paid for by oil and gas companies, and like other European governments, Labour will have to tackle climate change.
Enter Ed Miliband, no stranger to losing elections himself, reprising his old role in the Shadow Cabinet as Secretary of State for Energy and Climate Change (2008-2010). His current title is Shadow Secretary of State for Energy Security and Net Zero, but the role is a soft spot for the man nicknamed “Ed Stone” as a last resort after Labour's failed re-election in 2015.
In the personal finance arena, the UK ISA promised by current Chancellor Jeremy Hunt this year (or forever) may not happen, but Labour is do not have We are dismantling our current savings and investment system too quickly. Yet Rachel Reeves has outlined policy proposals on pensions tax, savings products and financial advice, all of which need to be simplified.
Whether the current state pension is affordable is a question the government doesn't want to talk about, but it has to be solved – and the Conservatives know it. Jeremy Hunt has already said that any new government would keep the triple lock in place after the election, but this comes across as little more than a political grenade to be hurled at any new cross-party government.
And there's the tax burden.
High government debt levels mean the next government will have little room to cut taxes, and Labour, the party that champions the NHS, is likely to find itself in a real bind over funding the health service, which opinion polls still see as a key issue.
Readers with long memories will recall the controversy surrounding Prime Minister Gordon Brown's decision in 2002 to add 1% to National Insurance Contributions to increase NHS spending by £6 billion. Today the NHS costs the country £180 billion, ambulances don't arrive on time and GP appointments require fighting over telephone queues at 8am. After the “Trasonomics” mini-budget debacle saw bond yields skyrocket and the pound fall dramatically, markets are now seen as constantly watching how tax increases will be funded.
Pray for growth
Given this unique and difficult situation, it is not surprising that Reeves is arguing for a Labour government that prioritises economic growth.
In a recent speech, she said that a Labour government would have to make “impossible” tax and spending decisions if economic growth did not improve – a move that is probably reasonable but may have irked economists who had been calling on the shadow chancellor to provide a stronger case for government-funded stimulus.
All of this assumes that Reeves and Starmer may move cautiously at first, but that plans for radical reform emerge later. Another theory is that a Labour government would change very little. After all, British voters are now used to high taxes and, after pandemic-era furloughs and “helicopter money,” a fair bit of government intervention. Doing the same thing again might not be particularly controversial. In any case, the two parties have been stealing each other's ideas for years.
That aside, decent economic growth wouldn't hurt. But if it wants to do anything with the results, Labour needs to get a good result first. It's time to wait and see whether Keir Starmer's determination to “put power over protest” pays off at the polls.
