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Peas in a pod?

20 April 2015 By Hugo Dixon

Are the Tories and Labour the Tweedledum and Tweedledee of UK politics? In most things, there’s not much to choose between the UK parties’ economic election pledges. Both want to cut the deficit gradually. Both want to splash out on the National Health Service. And both have a smattering of silly micro-policies. The big differences are that Labour would tax the rich more and the Tories might take Britain out of the European Union.

Given how much Labour has criticised the Conservative-led coalition government for budgetary austerity and how the Tories have in turn lambasted the opposition for fiscal irresponsibility, one might have expected them to be setting forth radically different views about how to manage the deficit which is still 5 percent of GDP.

In fact, they both have sensible, measured approaches to reducing the deficit. This is partly because the Tories have eased up a bit on their planned cuts, while Labour has sought to dress itself up as fiscally responsible.

True, David Cameron, the Tory leader, would reduce the deficit a bit faster. But he has also come up with a large off-balance sheet spending plan – giving the tenants of housing associations the right to buy their homes at a discount. The government would compensate the housing associations for the discount but this cost will be viewed as a capital outlay and so not count towards the deficit.

Not only do the two parties have broadly the same view about the deficit; they share similar spending priorities. The Tories have sought to banish fears that they are bad stewards of Britain’s much-loved NHS by promising an extra 8 billion pounds a year for healthcare. They have also outbid Labour in their pledge to double free childcare for parents with toddlers to 30 hours a week. The opposition is only promising an increase to 25 hours a week.

One might have expected the Conservatives to be better on microeconomic policy. After all, Ed Miliband, the Labour leader, has a penchant for meddling in the market. He has promised, for example, to freeze energy prices and rail fares as well as to jack up the minimum wage and ban so-called zero-hour contracts, a flexible type of employment deal that gives workers no guarantee of work.

But Cameron has caught the meddling bug too. He has effectively matched Miliband’s pledge to freeze rail fares and increase the minimum wage. Meanwhile, he will force large companies to give workers an extra three days off each year to do charitable work – something that will add to businesses’ costs.

One clear difference between the parties is on taxing the rich. Labour wants to increase the top rate of income tax for those earning over 150,000 pounds a year, from 45 percent to 50 percent. It also wants to scrap the so-called “non-dom” status that allows some wealthy people to avoid paying tax on their foreign income. While it is fair to tighten up on this privilege, the way Labour is proposing to do so could drive some people who contribute to the economy off-shore.

Finally, Miliband plans to introduce a so-called “mansion tax” on homes worth more than 2 million pounds. Although housing is under-taxed in the UK, Labour’s scheme is half-baked. It loads tax on a few people mainly in London but does nothing to iron out anomalies lower down the property ladder. Far better to charge a flat rate percentage on all homes.

Mind you, Cameron has come up with his own dubious housing policy: a plan to let couples leave homes worth up to 1 million pounds to their children or grandchildren without incurring any inheritance tax. It may be a good idea to cut death taxes but doing so only for homes will give the British people yet another reason to invest in property rather than more productive assets.

Another big difference is that the Tories have promised to renegotiate Britain’s relationship with the EU and then give the people a vote on whether to stay in. This is potentially extremely worrying, since quitting the EU would be bad for the economy.

That said, Cameron hasn’t yet made any impossible demands on his EU partners – with the possible exception of wanting to deny migrants access to benefits for their first four years in the country. He would almost certainly campaign to stay in himself.

Meanwhile, if Labour wins the election, the Europe issue won’t go away. If the Tories are re-elected, they would bring back their referendum pledge and, in such a future scenario, they might be led by somebody more eurosceptic than Cameron.

So while there are some unfortunate promises from both Labour and the Tories, a victory by either party shouldn’t be too damaging to the economy. Nor would a government by either party supported by the Liberal Democrats – the Conservatives’ current coalition partner, whose policies are reasonably sensible.

The biggest worry rather is that neither Labour nor the Tories will have the numbers to govern on its own or in alliance with the LibDems and that, instead, the Scottish National Party, which wants independence for Scotland, will hold the balance of power. The UK may then be really hard to govern.


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