Richard Nicholls
General Election 2015: A fiscal choice?
A number of our clients have asked us about the impact of the election on the economy and the consumer spending landscape.
It’s been clear for a few years now how the two main parties will offer different fiscal paths. The Conservative manifesto has promised to eliminate the budget deficit by the end of the next Parliament in 2020. Labour have pledged to run a surplus only on the current budget, which excludes investment spending and therefore implies a less stringent deficit reduction programme.
What does this mean for consumers and incomes? A Conservative-led government would mean sharper austerity and therefore probably lower short-run disposable income growth than a Labour-led government but the latter’s plans would lead to higher national debt.
Beyond this overall direction of economic policy, few details on specific austerity measures have been articulated by either of the main parties. Various benefits and areas of departmental spending have been ring-fenced and both parties have pledged to combat tax evasion and avoidance but many spending cuts (and probably tax rises too) will be necessary to meet these fiscal goals.
And of course the low probability of a majority government provides a further complication. If, as seems likely, a new coalition or minority government is formed then the plans of the Conservatives or Labour will be coloured by their reliance on the support of smaller parties.
But whichever party leads the next government, there will be significant further austerity. Added to this, early in the Parliament interest rates are forecast to begin their slow ascent from their current record low. This will be an additional source of pressure on incomes. The overall narrative for the next five years is not likely to be one of high growth.
So while we can have a broad idea of some of the fiscal implications of the election result, the extent to which different income groups, regions and lifestages will be affected is very uncertain. By the Queen’s Speech in late May we might have some more policy guidance but much will only become clear on a budget-by-budget basis.
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