IREF - Institute for Research in Economic and Fiscal issues
Fiscal competition and economic freedom
On the 8th of June UK citizen will vote to elect a new Parliament in a snap election called by current Prime Minister Theresa May. The very short campaign so far has focused very little on economic and strategic policies. The key issues considered so far have been instead immigration policies, national security (in particular after the two recent terror attacks in Manchester and London) and the leaders’ personalities. In an election that will shape the future of the country at least for a generation, the UK voters will go to the polling stations facing uncertainty and being denied a clear debate on public finances, industrial and international economic policies.
The latest polls show that the margin in favour of the Conservative party has started to shrink. The UK may be approaching the Brexit negotiations with a weak government and strong internal opposition and this may spell disaster.
In what follows we offer our take on the campaign so far.
The Tory Party
After the Brexit referendum and the resignation of David Cameron, Theresa May (who was initially a “remainer”) took the leadership of the Conservative Party, promising to get the UK out of the EU. In July 2016 she also firmly excluded the necessity of calling snap elections. Since taking the job, the rate of approval of the Prime Minister has increased steadily and this has clearly induced Mrs May to call for a snap election nonetheless. Many political commentators and Mrs May herself were sure that in four weeks the Tory would strengthen their power in Parliament and see an historical defeat for Labour. This may not be the case.
The Manifesto. The Conservative Manifesto is rather vague and it roughly boils down to a simple personal message by Theresa May saying: “trust me”. It is striking and very disappointing that the manifesto does not provide any serious costing for the policies mentioned. In addition, it is remarkable that the Chancellor of the Exchequer, Phillip Hammond, has had no role in the campaign. The manifesto does not provide a clear and convincing description of how the Conservatives are planning to face the Brexit negotiations and the type of economy they envisage after leaving the EU.
Strong and stable? The mantra obsessively chanted by Mrs May and her followers has been that Great Britain needs strong and stable leadership (in contrast to a weak and bickering leadership offered by Jeremy Corbyn and the Labour Party – see below). The very patronizing political stance of the Prime Minister may have appealed to voters initially, but a political campaign cannot be run only repeating ad nauseam rather meaningless statements such as “take back control”, “Brexit means Brexit” and, more recently, “enough is enough”. Her reputation of pragmatic politician and strong leader may have been enough under other circumstances, but recent events (including terrorist attacks, economic slowdown, multiple embarrassing U-turns on important policy issues just days after the release of the manifesto) have started to make a dent on Mrs May’s reputation and her chances to obtain an overwhelming majority in Parliament.
The Labour Party
The Labour Party under Jeremey Corbyn has experienced serious leadership issues.
It is nonetheless evident that Mr Corbyn appeals to a significant portion of the population. Under his leadership, Labour membership has doubled. Mr Corbyn has established a reputation of an idealistic leader who appeals to old socialists and younger voters. Because of his past as an activist, some (including current Labour members of Parliament) have questioned whether he really even aspires to become Prime Minister.
To the surprise of many political analysts, Mr Corbyn’s coherence and commitment to his ideals (as described in the Labour manifesto), in contrast to Mrs May’s U-turns and vague mottos, has started to have a significant effect in the polls.
The manifesto. The Labour manifesto pictures a return to a heavily nationalised economy, a significant increase in public spending (and borrowing) and an increase in corporate tax and income tax for the richest (income above £80K) in the society. In contrast to the Conservative manifesto, the Labour document provides detailed costing. The economic policies described in the manifesto are dangerous and potentially harmful to the UK economy. They show a clear distrust (or even disgust) for entrepreneurship, business and wealth. If they were implemented, the UK after Brexit would seriously struggle to attract any significant type of international investment. Such policies are, however, clearly appealing to a portion of the society and have been effectively defended by Mr Corbyn during his campaign.
The Liberal Democrats and the SNP may play an important role as opposition (they have expressed no interest to form a coalition government in case of a hung Parliament). Interestingly, both parties are promising a referendum. On one side, the LibDem manifesto promises a referendum on the Brexit deal that will be negotiated with Brussels. On the other, the SNP is promising people in Scotland a second referendum to leave the UK.
What to expect after the 8th of June
The result of the election will strongly depend on the votes of young people (who are mostly going to vote for Labour and, to some extent, LibDem). Historically, younger voters, while active and engaged during the campaign, do not tend to vote as consistently as older generations. Nonetheless, what the polls suggest is that the margin in favour of the Conservatives is shrinking and we may see a rather weak Tory government that will lead the Brexit negotiations, while dealing with strong internal opposition and the threat of referenda called after the negotiations.
It does look like that, similar to the decision of Mr Cameron to call for a Brexit referendum, the decision of Mrs May to call for a snap election may be very unfortunate and will have potentially negative and long-lasting effects on the UK and its economy.