Britain will see little difference in public spending whichever of the country’s main parties wins next month’s general election, with state coffers heavily strained by massive Covid spending.
The main opposition Labor Party, widely tipped to defeat the ruling Conservatives in national elections on July 4, has promised investment in key sectors such as health and education, but has also stressed the need to balance the books.
The Conservatives, led by Prime Minister Rishi Sunak, are promising tax cuts that they claim will not cause further chaos in the markets.
“Similar Policy”
“Both parties offer very similar fiscal policies, there is a piece of paper between the two,” Daniel Sopher, senior partner at tax practice Sopher + Co, told AFP.
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“However, the way they will manage the economy will be completely different, one will focus on tax cuts and the other will focus on investment and long-term strategic plans such as the zero carbon strategy.”
Keir Starmer’s Labor and Conservatives are seeking to avoid a repeat of October 2022, when the latter’s unfunded tax cuts revealed in a budget spooked markets and sent the pound crashing.
It also sunk the chaotic premiership of Liz Truss, who lasted just 49 days before being replaced by Sunak.
The UK economy is currently on a firmer footing after emerging from a mild recession and as inflation returns to normal.
The situation also appears calmer compared to neighboring France, whose upcoming snap election has prompted higher borrowing costs for the country’s government.
President Emmanuel Macron threw France into turmoil earlier this month by calling the vote after his centrist party was routed by the far-right National Rally (RN) in European elections.
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The French vote is shaping up to be a showdown between the RN and the left-wing New Popular Front, dominated by hard-left France Unbowed.
Investors are worried about the parties’ high spending commitments.
‘Safe Haven’
In Britain, Labor promises a firm commitment to spending if it wins power.
“I want investors to look at Britain and say it’s a safe haven in a troubled world, a place where I can invest with confidence in a world where maybe other countries are leaning towards more populist politics,” said Labour’s finance spokeswoman Rachel Reeves. recent gathering of business leaders.
He also said that “change will be achieved only on the basis of iron discipline.”
Britain’s public debt has flirted with a level totaling 100 percent of gross domestic product in recent months – a situation not seen since the 1960s.
“The reason for Starmer’s popularity … (is) because he offered an immutable change,” said James Wood, senior professor of political economy at Cambridge University.
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“He’s basically a Conservative in a red tie,” Wood said referring to the color associated with Labor and Starmer’s prudence on spending.
Higher taxes?
Should Labor win a large majority, as some polls suggest, the party’s leadership may feel pressure from its own members to loosen fiscal rules, analysts say.
“I don’t think anyone in the markets will be nervous about another change in the fiscal rules,” said Jonathan Portes, an economist at King’s College London, noting that the Conservatives have changed them several times since they won power in 2010. .
“Obviously the fiscal rules are going to change, the question is how are they going to change and are they going to change in a way that makes sense.”
According to Sopher, whichever party wins power, “the tax will increase” to fund public services.
“There is only so much limit to how much one can raise the debt,” he added.
Source: AFP