Party manifestos and the British economic reality

Britain’s next government will inherit an economic mess. After the July 4 general election, political leaders must somehow grapple with the country’s tricky trifecta of sluggish growth, tight finances and underfunded public services. That will warrant bold economic stewardship.

But the British electorate is tired. The years-long Brexit process, the cost of living crisis and the “mini” Budget fiasco in September 2022 have made the idea of disruptive reforms, and higher taxes to support hospitals, schools and courts, unpalatable for households and businesses. The manifesto presented by Rishi Sunak’s Conservative party this week is unrealistic. The programme from Sir Keir Starmer’s Labour is more credible, but beset by caution.

The Conservative platform is a series of stop-gap measures rather than a clear statement of intent for the next five years. The centrepiece is a package of £17bn in tax cuts. This includes a plan to slash national insurance and raise the threshold for taxing child care benefits, which would support labour force participation. A promise to permanently reduce stamp duty for first-time buyers may boost home ownership, but it risks raising house prices if ambitious housebuilding targets are not met. Elsewhere there are important commitments to apprenticeships, devolution and clean technologies, albeit without the coherent national or regional growth strategy that Britain needs.

Sunak’s plan to pay for his pledges with cuts to the welfare bill, a crackdown on tax avoidance and various civil service savings is a serious stretch. The manifesto commits to a rise in defence expenditure but fails to address the reality of overburdened public services, which will necessitate higher spending.

Labour’s manifesto provides a crisper vision for the economy, if not a wildly ambitious one. The promise of stability as a foundation of growth and wealth creation will be welcomed by business, and could unlock some stalled investment plans. Its long-term infrastructure strategy, backed by an overhaul of planning rules, is promising, though it will take time to bear fruit. Britain’s productivity has been hampered by short-term policymaking and an inability to get roads, railways and homes built. The acknowledgment that additional money for the NHS and education will also require a change in how they work shows pragmatism.

But there are concerns too over Starmer’s plans. The promise not to lift corporation tax, VAT or national insurance — stemming from a determination to show this is not the reckless tax-and-spend Labour of old — risks hemming the party into unrealistic spending plans for public services. It complicates much-needed efforts to simplify and reform Britain’s tax system, which could boost growth.

It also means Labour may be forced to resort to wealth taxes down the line. Starmer’s aim to raise £8.6bn in carefully targeted tax increases includes a higher levy on private equity bosses, which carries the risk of marring UK competitiveness. Though Labour’s manifesto does not otherwise mention capital gains tax, future changes are not ruled out. Fair burden-sharing is important in revitalising the UK economy, but not at the cost of driving away wealth.

At this halfway point in the campaign, Rishi Sunak has been unable to disassociate his putative future government from the chaotic Conservative administrations of recent years. Labour’s desire not to eat into its 20-point poll lead has led the party, meanwhile, to be laser-focused on convincing the electorate and markets that it is fiscally responsible. If it comes to power, it will need to show quickly that it can deliver the “change” it has adopted as its one-word slogan. Ending a decade of uncertainty and instability is important. But it will not in itself be enough.

Letter in response to this editorial comment:

Not all housing solutions have to come with a hefty price tag / From Mario Ambrosi, Chair of the Housing and Ageing Alliance Director of Communications and Marketing, Anchor, London WC1, UK