At cabinet this week, David Cameron forced his colleagues to confront failures in the government’s economic growth strategy. It is often argued that elections are won and lost on the basis of the economy, and with a somewhat gloomy outlook ahead and a tumultuous past lingering, the government knows that the economy is its main focus for maintaining electoral support and the opposition know it as well.
Labour has had a rocky six months with Ed Miliband frequently under attack for his lack of direction and gusto and for leaving voters still wondering how Labour is any different from the Tories. Economic policy is at the forefront of the public’s minds and with the jobless total at a 17 year high and inflation at 3.6% the Labour party has done little to evoke any confidence in their ability to change this.
With the March budget coming up soon, Osborne is under increasing pressure to reassure the public that he has the way forward. Osborne’s argument to date has been, if he hadn’t acted to reassure the markets through an austerity plan then Britain’s credit rating would have suffered. However with Moody’s placing the UK on a ‘negative outlook’, the Chancellor has been under pressure to find a growth plan and find one fast.
Below we can take a look at some of the economics policy/thinking that has been attributed to each party:
|Tax break to all small firms taking on extra workers||‘Efficiency savings’: Local councils, NHS, civil service etc.|
|Temporary VAT cut (5 point plan)||Removing Child Benefit from households with one or more higher-rate taxpayer|
|A £2 billion tax on bank bonuses to fund 100,000 jobs (5 point plan)||Bank levy which will raise £2.5 billion every year over the current Parliament|
|Bringing forward long-term investment projects (5 point plan)||Council tax freeze 2011-12|
|A one year cut in VAT to 5% on home improvements (5 point plan)||Cut in corporation tax from 28% to 24% over 4 years|
|A one year national insurance tax break (5 point plan)||A single ‘Universal Credit’|
|Car scrappage scheme previously introduced by Lord Mandelson (Chuka Umunna on Guardian)||Shrinking of the public sector and expansion of the private sector|
The above measures amount to very little. Osborne’s initial prediction of a private sector led recovery has not materialised. The idea that by just shrinking the public sector would automatically lead to private businesses stepping in has not happened. The problem with Labours approach to the economic situation is that they oppose every cut the Tories decide upon but do not promise to reverse it or provide a specific and relevant alternative. Yet they are also committed to eradicating the deficit.
Recently, George Osborne said the government would not change its fiscal plans, adding that Britain’s economic problems were being made worse by the situation in the eurozone. “I think we’ve got the right plan, we’ve got to stick to it,” he said.
Ed Balls, the shadow chancellor, blamed Osborne for putting the economy into reverse. He said: “Far from the eurozone crisis being to blame, it is only rising exports that kept us out of recession last year. By clobbering the economy with spending cuts and tax rises that go too far and too fast, the government has left us badly exposed if the eurozone crisis deepens this year.”
Both parties desperately need to develop clearer thinking on the economy. The UK’s economy has been heavily dependent on the financial and service economy, fuelling a consumer boom and dependent upon it. Osborne recognised this phenomenon and promised a ‘restructuring of the economy’. A greater emphasis on making things, industry and innovation, yet very little has materialised. It is hard to see how growth can come anytime soon.