Ahead of the UK general election, polls point to one, clear outcome: near wipe-out for the ruling Conservative Party. After 14 years in opposition, the Labour Party looks set to return to government with a huge majority.
Polling data suggests frustration with the state of the economy is a major reason. According to the Pew Research Center, just 22 per cent of potential voters think the UK economy is in good shape. Even confirmed supporters of the Conservative Party agree. As recently as 2017, around 75 per cent of the party’s supporters were positive about the economy. That figure now stands at 27 per cent.
That is not good news for a party that has had a decade and a half to impose its economic vision on the country. Yet the government is clinging to some moderately positive economic data from the past few months as a reason why it can still be trusted to run the world’s sixth-largest economy.
“After undoubtedly a difficult couple of years that the country has had, actually now things are starting to feel better,” UK Prime Minister Rishi Sunak said in May. “Confidence is returning to the economy and the country.”
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The UK economy came out of recession in the first quarter of 2024, with a better-than-expected growth of 0.7 per cent. Inflation has also fallen to the Bank of England’s target of 2 per cent for the first time in three years, strengthening expectations that the central bank would cut its key interest rates later this summer.
Andrew Goodwin of Oxford Economics says there are tentative signs of economic recovery. “In the context of the past couple of years, the economy is doing reasonably well,” he told DW. “There’s sustained growth, albeit not at the pace you would normally see in the early stages of a recovery.”
Cost of living crisis
However, he says detailed economic policy has not been a big talking point during the election campaign.
“Economic policies tend not to appeal much to voters, and the parties have largely focused on other issues,” he said. “However, cost of living pressures and underfunding of public services are two key factors behind voters’ desire for change.”
Creon Butler, head of global economy and finance at Chatham House, believes the economic climate is motivating voters, particularly, the issue of inflation. He also says funding of public services is a very important issue for voters.
“They can see the consequence of the economy’s poor performance in terms of the NHS (National Health Service) and a whole range of other services, from the police to local authority, expenditure on roads, and so on,” he told DW. “So what the public sees is the consequence of poor economic performance, which means the government hasn’t got enough money to spend on key public services.”
A major issue for the next government will be public investment. A recent study from the Institute for Fiscal Studies, a UK-based economic research institute, predicts that public sector investment, as a percentage of GDP, will decline from an estimated 2.4 per cent of GDP this year to as low as 1.8 per cent of GDP by 2028.
“I don’t think the public is hearing the full story from the political parties about the really tough choices that we have to make,” says Butler. “The consequences of the economy’s weakness, particularly productivity growth, have not really been spelled out for the public to the extent that is necessary and to the extent that is needed to motivate the tough decisions the government will have to make,” he said.
Goodwin agrees. “The shape of fiscal policy post-election is up for debate, but both parties are largely ignoring the poor inheritance they will have to confront if they form the next government,” he said.
How much do the parties differ on economic policy?
While both parties argue over various issues, including how to boost productivity and GDP growth, many commentators have pointed out that their economic policies do not differ hugely. Since Liz Truss’ disastrous and record-breakingly short 49-day spell as Prime Minister, the Labour Party has presented itself as the stable option to manage the economy.
Truss’ government collapsed due to its highly unorthodox economic policies. That wrecked the Conservatives’ self-image as a party known for economic competence but since Jeremy Hunt took on the role of Chancellor (UK Finance Minister), Labour have not opposed many of his economic positions.
Rachel Reeves, who will become the chancellor if Labour wins, holds broadly similar positions to Hunt on taxation and the government’s fiscal rules, which will be crucial when it comes to public spending policy.
However, Creon Butler believes the prospect of a Labour government after 14 years of Conservative rule means a fundamental economic shift may be coming. “It’s important not to underestimate the fact that the overall approach would be very different because the philosophy is different,” he said. He says the Labour Party differs fundamentally from the Conservatives in three areas of economic policy: the role of the public sector, regulation, and attitude to the European Union.
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It is relations with the EU where the impact of a Labour government would likely be felt quickest. Although Labour leader Keir Starmer has studiously avoided bringing up Brexit since becoming leader, the Conservatives have tried to portray a Labour win as “bad for Brexit”. “Brexit would be in peril under Labour,” Sunak said recently.
Butler says Labour have less “baggage” than the Conservatives with regards to the EU, and that while they don’t necessarily want to reopen negotiations around, for example, rejoining the Customs Union, they will be keen to develop more cordial and productive EU-UK relations than have been the case for the past few years.
However, he emphasised that whoever wins the election, the long-term impact of leaving the EU will continue to have an outsized influence. Various studies have shown that UK GDP is between 2 and 3 per cent lower today than it would be if Brexit had not happened. “In terms of our economic position now, it is absolutely fundamental,” he said.
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