General Election 2017: The Economic Arguments Considered (Part II)

Following on from the previous article the general election of 2017 offers a clear choice for the electorate. However it is still not clear what party can offer the best economic policies and whether the criticism levied against the Conservatives or Labour is valid or not.  

The Manifesto released by the Conservative Party makes repeated references to the Northern Power House, the HS2 railway linking the North and Midlands with the South, and the rebranding of the party for the ‘working man’. Although this rebranding has been used by the Conservatives to appeal to an otherwise unsupportive part of the electorate, this has also been a strategy to further reduce the image of the Conservative party being the ‘nasty party’. The election on the 8th June will determine whether this rebranding has worked. 

The Conservative government’s austerity measures have appeared to lower the UK budget deficit but has not been successful at lowering the UK’s overall national debt. If we look at the debt to GDP ratio in 2008, before the financial crash, the debt to GDP ratio stood at 50.2 percent. In 2016 this debt to GDP ratio has increased to 89.3 percent. The vote to leave the EU and the subsequent Brexit negotiations has given the Conservatives an opportunity to deflect criticism from their economic policies, by stating the reduction of the national debt and the budget deficit cannot be achieved due to Brexit. But has this given Labour an opportunity to exploit the Conservatives inability to improve both people’s lives and reduce the national debt?

Far more interesting than the Conservatives will be how the Labour Party and in particular how its leader will fight this election. Labour under Corbyn and John McDonnell have, in my opinion, recognised the divide in politics and the discontent amongst the working classes of the UK and especially England. With this they have presented policies that will appeal to this section of the electorate and radically alter the face of Britain.

Many have commented on the £500 billion that Labour wishes to invest in the economy. For example, in 2016 The Telegraph published an article stating “Labour’s main economic policies would ruin Britain”, stating Labour’s economic policies “would be a recipe for calamity, a financial and social catastrophe, a negative productivity shock”. Although many have taken this view of Labour’s economic policies, they are in its core principles not calamitous or catastrophic. Instead, they are presenting a new way of obtaining economic growth through investing, instead of cutting your way to economic growth, as the Conservative government has attempted to do.  This approach by Labour in my mind has a Keynesian feel to it.

The leaked Labour manifesto indicates that Labour plan to intervene more in the running of the economy. The railways and energy market are set to be brought back under public ownership with a cash injection for investment of up to £250 billion over 10 years. Furthermore Labour plans to build 1 million new homes by the end of the next parliament, create a 20:1 limit on the gap between the lowest and highest paid workers, and a possible rise in taxes for those earning above £80,000. This may seem radical, and to be completely honest it is if you consider we have been in a climate of austerity since 2010. Labour’s policies, even before being leaked, have been criticised on many points with most criticism being levelled at more state intervention. However I would like to point out that since 2008 government has embarked on a £350 billion injection of money into the financial system otherwise known as Quantitative Easing. Some questions arise, such as where did the government find all that money? And what have been the benefits of it? These same questions can be levelled at Labour's economic policies too.

Mark Blyth has argued as much. In his book Austerity: History of a Dangerous Idea; Blyth argues that, in order for economies to grow and not remain in a state of deflation and economic stagnation, investment in the real economy must take president over austerity measures. For instance the large scale borrowing suggested by the Labour Party can be done due to the low levels of interest on the UK government 10 year Gilts (at the time of writing 1.11%). Furthermore Blyth argues that if investment in the economy would produce economic growth, the debt to GDP ratio would not increase but decrease due to the fact the baseline GDP of the economy has grown. With that being said, it is hard to see how Labour's economic policies are ‘crazy’, ‘dangerous’ or even ‘calamitous’ for the economy. However I will concede that they are not common in this current economic environment, from Europe, the United States, or Asia.     

It has become clear to me that both the Conservatives and Labour have recognised the need to create economic growth through investment in the economy, not through budget cuts. The Conservatives are proposing to do this with the Northern Powerhouse Policy and on the opposite side Labour are proposing the Regional Investment Banks. However, one clear divide still remains, will the free market play a key role in this or will government intervention (not always a bad thing - look at education and the NHS for example) on a bigger scale be the best way to help and encourage economic growth?

It is clear that uncertainty will still be present, due to Brexit negotiations, but to ignore the key principles upon which the Conservative or Labour Parties form economic policies would be a grave mistake indeed. It is my hope that those reading this article will not just look at what either Party is saying about Brexit but look at the domestic economic policies also and how it will affect your lives. Surely this will also determine how Britain will confront a post-Brexit world and how you will vote on the 8th June.