The 2019 General Election: clear blue water between the two main parties

In this Perspective Ruth Lea, Economic Adviser to the Arbuthnot Banking Group, discusses the fiscal implications of the manifestos of the Conservative and Labour Parties:

  • The Conservatives’ plans for extra current expenditure are modest, financed by higher taxes (principally the cancellation of the cut in the Corporation Tax rate).
  • In addition, the Conservatives plan to increase capital spending by around £20bn a year, funded by borrowing, as announced on 7 November.
  • The Labour Party plans to increase current spending by over £80bn a year by FY2023, funded by higher taxes. The higher taxes include a rise in the Corporation Tax rate to 26%, higher income taxes on those earning over £80,000 a year, higher wealth taxes and a Financial Transactions Tax.
  • In addition, Labour plans to increase capital spending by around £55bn a year, funded by borrowing, as announced on 7 November.
  • Labour also proposes to provide costly compensation to women born in the 1950s affected by the equalisation of the state pension age between men and women and an extensive nationalisation programme.

Concerning UK economic news:

  • The public sector finances continue to deteriorate modestly.
  • The Bank’s data on the growth of consumer credit was 6.1% (YOY) in October, modestly up on September’s 5.9%, whilst the growth in net mortgage borrowing by households was 3.2% in October YOY), unchanged from September.

Recent international forecasts:

  • The OECD remained gloomy about the global economy in its November forecast. It forecast 2.9% growth for 2019, the lowest since the financial crisis, followed by 2.9% in 2020 and 3.0% in 2021.
  • The European Commission was also gloomy in its Autumn (November) forecast. Eurozone growth was revised modestly down to 1.1% for 2019 (1.2% in Summer), 1.2% for 2020 (1.4% in Summer), followed by 1.2% for 2021. There were growth downgrades, in particular, for Germany, Italy and Spain.

Ruth Lea said, “…there is little doubt that there is ‘clear blue water’ between the proposed fiscal policies of the Conservative and Labour Parties, as set out in their manifestos for the upcoming General Election. The Conservatives’ plans for higher current spending are very modest, whilst the Labour Party proposes to increase spending by over £80bn in FY2023. Moreover, their plans for capital spending are very different. As the IFS concluded in its analysis of the manifestos, ‘…rarely can a starker choice have been placed before the UK electorate’.”

Ruth Lea CBE has been Arbuthnot Banking Group’s Economic Adviser since 2007 and was an Independent Non-Executive Director from 2005-2016.

Ruth co-founded Global Vision in 2007 and was Director until 2010, and was previously the Director of the Centre for Policy Studies (from 2004 to 2007), Head of the Policy Unit at the Institute of Directors (from 1995 to 2003) and Economics Editor at ITN (from 1994 to 1995).  Prior to ITN she was Chief UK Economist at Lehman Brothers, Chief Economist at Mitsubishi Bank, worked for 16 years in the Civil Service (the Treasury, the DTI, the Civil Service College and the Central Statistical Office) and was an economics lecturer at Thames Polytechnic (now the University of Greenwich).

She is the author of many papers and articles on economic issues and has been a Governor of the London School of Economics and Council Member of the University of London.

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