Who­ever wins, UK faces more aus­ter­ity

The China Post - - COMMENTARY - BY PA­TRICE NOVOTNY

In the ca­coph­ony of slo­gans ahead of the United King­dom’s gen­eral elec­tion on May 7 one thing is for sure — the coun­try faces more aus­ter­ity whichever party wins.

Con­ser­va­tive Prime Min­is­ter David Cameron po­si­tions him­self as a sav­ior who res­cued the deb­trid­den econ­omy he in­her­ited when com­ing to power in 2010.

With eco­nomic growth pick­ing up to 2.8 per­cent in 2014 and the un­em­ploy­ment rate fall­ing to 5.6 per­cent, his Labour ri­val Ed Miliband has an up­hill task.

But Miliband’s cen­ter-left party says the head­line num­bers mask an un­even re­cov­ery that has mostly ben­e­fited the rich.

Labour point out the av­er­age wage of a Bri­tish worker has fallen by 1,600 pounds (US$2,429) a year since Cameron took of­fice — and that many new jobs be­ing cre­ated are badly paid and of­fer lit­tle se­cu­rity. Miliband has pledged to crack down on abuses of so-called zero hour con­tracts, un­der which em­ploy­ees have no min­i­mum guar­an­teed hours.

Cameron has mean­while halved the bud­get deficit since 2010, when it was above 10 per­cent of gross do­mes­tic prod­uct (GDP) due to ex­cep­tional mea­sures taken by the then Labour gov­ern­ment in the global fi­nan­cial cri­sis.

Labour says Cameron broke his prom­ise to bal­ance the books, although new data out last week showed the coali­tion gov­ern­ment beat its own deficit-cut­ting tar­get for the 2014-2015 fi­nan­cial year to March.

The real dif­fer­ence be­tween Con­ser­va­tives and Labour is over the tim­ing of the deficit re­duc­tion in the fu­ture.

The Con­ser­va­tives prom­ise a sur­plus by 2018-2019, while Labour says this would hap­pen be­fore the end of the next par­lia­ment — mean­ing by 2020 at the lat­est.

With a more grad­ual rate of deficit cut­ting, ex­perts say Labour may be able to spend a bit more.

“In prac­tice though, we doubt that the dif­fer­ences would be quite that large,” said Sa­muel Tombs from re­search firm Cap­i­tal Eco- nomics.

Tombs said the Con­ser­va­tives could be pushed to loosen the purse strings to keep their word.

"The Tories ( Con­ser­va­tives) have com­mit­ted to a se­ries of costly prom­ises ... At the same time they have also pledged not to raise in­come tax, na­tional in­sur­ance or VAT (value added tax).

“There would there­fore ap­pear to be a rel­a­tively high chance that they would have to soften their am­bi­tious fis­cal tar­gets,” he said.

‘Cock­tail of un­cer­tainty’

In both cases, the UK would still be left with a moun­tain of debt. The gov­ern­ment cur­rently has an over­all debt of 1.48 tril­lion pounds — some 500 bil­lion pounds higher than 2009/10.

Labour say all their prom­ises are care­fully costed, and that they will not take on any new debt and slash the ex­ist­ing debt.

“Labour’s plan to bal­ance the books means mak­ing tough, but fairer choices,” reads their man­i­festo.

The In­sti­tute for Fis­cal Stud­ies, an in­de­pen­dent think tank, said that all the main par­ties “leave much unan­swered” when it comes to public fi­nances.

“Labour's plans in­clude some small net tax in­creases and their com­mit­ments to in­crease cer­tain ar­eas of public spend­ing are no big­ger than the Con­ser­va­tives,” it said.

Nei­ther of the two main par­ties has come out with any ma­jor pro­posal for new ways of rais­ing funds and both are promis­ing to do more to fight tax eva­sion.

An­other key point is that nei­ther the Con­ser­va­tives nor Labour are ex­pected to win an over­all ma­jor­ity, which means they will have to seek al­lies to gov­ern.

With a grow­ing frag­men­ta­tion of the vote, “the Bri­tish gov­ern­ment is about to be­come much less sta­ble and pre­dictable and with a sig­nif­i­cantly weaker man­date,” said Ross Walker, an econ­o­mist at RBS bank.

Big busi­ness lead­ers over­whelm­ingly sup­port the Con­ser­va­tives, but many are con­cerned about the ref­er­en­dum on the UK’s EU membership that Cameron has promised to hold by 2017 if he wins. John Crid­land, head of the Con­fed­er­a­tion of Bri­tish In­dus­try (CBI), the UK’s main busi­ness lobby, is even more stark in his as­sess­ment of what will hap­pen af­ter the May 7 vote.

“It could end up with a cock­tail of un­cer­tainty and un­cer­tainty is dam­ag­ing for in­vest­ment,” he said.

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