The air hangs heavy with a sense of economic dread. We are in a technical recession and the country is growing slower now than when the Prime Minister took office. Businesses are hesitant to invest, consumers are tightening their belts, and the UK stock market isn’t competing with its counterparts with companies even delisting from London, choosing New York, Paris or Frankfurt.
This isn’t just another cyclical downturn; it’s a full-blown economic malaise brought on initially from Covid but exacerbated by a single, avoidable factor: the government’s refusal to hold an election when business know they are dead ducks. Growth will only begin to come after an election.
The logic: When the legitimacy of the government is in question at the fag end of a deeply unpopular administration, long-term planning goes out the window. In a sane world Businesses would know that an election is coming, and in good time before know the shape and the detail of both party’s platforms. We do know an election is coming, we still don’t know when, and as we have seen today, the alacrity with which the government is willing to steal Labour policy means the opposition are not incentivized to reveal much about their plans.
And so this period of phony war, frustrating as it is for us politicos is genuinely harmful to UK plc. Business becomes risk-averse, delaying investments and expansions. Consumers, uncertain of the future, postpone major purchases. This lack of confidence creates a vicious cycle – lower investment leads to slower job growth, reduced consumer spending further weakens the economy and the tax take, and so on.
Even if business could be confident that the Chancellor will still be in place to actually implement any of them in years time, todays budget proposals today seem to be a patchwork of short-term fixes that fail to address the underlying structural issues facing the economy. None of the headline announcements are likely to kickstart wider growth in the economy and the knock on impact onto public services, which we know are now a key priority for the public, will be severe. This is a half baked short term budget that the Tories never expect to full deliver and seek to use to destabilise the country after the election, where their fate in opposition awaits. There is no plan, just a smattering of plasters.
Here’s the good news: there’s a clear path out of this mess. A new government, with a fresh mandate from the people, can inject the confidence markets desperately crave. From talking to business leaders over many months I suspect the impact would be pretty quick. Businesses, finally assured of a stable political environment, will be more likely to invest and expand. Consumers, in a little time, with a renewed sense of optimism, will loosen their purse strings, boosting demand and propelling some domestic economic growth.
Renewed confidence in the government and economy through a proper plan for growth will have a cascading effect. Inflation is falling, but the average person isn’t feeling it – they will only begin to feel it with a plan and when optimism and financial security is on the horizon. A stronger Labour government, with a clear mandate from the electorate, can negotiate better trade deals with India, the Gulf states and our European neighbours and invest in infrastructure.
Increased economic activity and market confidence in a stable government with a clear mission of a decade of national renewal will translate to higher tax receipts for the government, allowing a Labour government to invest in vital public services like healthcare and education. Whilst OBR figures seem gloomy, all could change quite quickly through clarity and change in public mood.
The government’s justifications for delaying the election are cynical and not in the public interest – they are in narrow electoral interests and the Tories will likely face a judgement for this at the polls. The longer they hang on, the less confidence there will be. In the government, in the economy and across society. We really will all be poorer the longer they hang on.
