Sunday, April 25, 2010

Ten Days to Go and All Up For Grabs

Just ten days to go before the British general election and uncertainty about the outcome is on everyone’s mind. The latest opinion poll, taken after the TV debate on Thursday, shows the Conservatives in the lead with 35% and the Liberals and Labour tied for second place, with Labour just a point behind the Liberals at 27%. With a 3% margin of error in the polling, the election is too close to call, though it is clear that the momentum has returned to the Conservatives.

Nick Clegg, the Liberal Democrat leader, has occupied a great deal of attention during the last week or so following his surprisingly stong performance in both the first and second leaders debate. The third and last of these debates will take place on Thursday and the focus will be on the economy. This is the debate that matters. First, the economy is one of the two key issue on which many voters will make their decision – the other key issue is trust. Second, the parties have sharp differences on what they will do to restore Britain’s economy, now badly damaged after massive spending since 1998 leading to deficits and debt.

The conservatives want to cut programs. So does the Labour Party. Reports are beginning to appear of substantial cuts to the National Health Service, in the order of £20 billion by 2014, now being planned by Labour, despite promises to maintain health care as the top priority. Labour plans to find efficiencies without affecting front-line services – cutting most of the administrative trivia they themselves imposed on health, education, social services, policing and other agencies. They also plan increases in overall public spending while cutting.

The conservative party have pledged not to cut health and foreign aid, but to eliminate "the bulk" of the UK's structural deficit within five years beginning in 2010 with £6bn in cuts. One of the ways they intend to do this is by permitting charities, trusts, voluntary groups and co-operatives to set up new Academy schools, independent of local authority control, and to run other public services – doing for a range of public services what Margaret Thatcher did for housing.

The Liberals, whose policies are now being taken seriously, are also proposing cutting spending. They are identifying £15bn of lower priority spending per year which they will cut so as to protect front-line services while reducing structural deficit at least as fast as Labour plans, beginning in 2011 – basically, the same policy as Labour. They intend to raise the threshold at which people start paying income tax from £6,475 to £10,000, which is a populist move and will simplify the tax system. They will also impose "mansion tax" on the value of properties over £2m and increase capital gains tax to bring it into line with income tax. This “mansion tax” sounds like a lot, but a lot of people who bought houses in parts of the UK in the 1950’s and 60’s now find that they are worth close to or above this sum, so this will alienate some of the middle class. Finally on the economy, the Liberals plan to introduce a banking levy until such time as banks' retail and investment arms can be separated – a proposal also made by Labour.

The real difference is that Labour has demonstrated itself incapable of stimulating the economy, the Conservatives understand the challenge and the Liberals don’t expect to win, but are aligning themselves with Labour in case there is a coalition government.

Clegg is already laying out terms. Last week he made any coalition dependent on the speedy introduction of proportional representation into the British electoral system – it already occurs in Scotland and Wales. This week-end he had made clear that, if Labour comes third, it would be absurd for Gordon Brown to remain as Prime Minister in any coalition – a clear bid for the job in such a Government.

Talk of a hung parliament is making the financial community anxious. The key to recovery, they suggest, is stable government. As we can see from the Canadian experience, minority governments are constantly concerned about their ability to stave off votes of no confidence. Coalition governments, as we can see from many European countries, can be successful usually for a short period of time. At some point, a majority government is needed to govern effectively – the financiers say. Economic growth in the first quarter of 2010 was 0.2% - half of the growth predicted by the analysts. Investors are waiting to see the outcome of the election, and may show signs of jitters the day after if the outcome is unclear.

Meanwhile, the leaders are on the “stomp” pitching their ideas to a bemused public. While millions have tuned into the leaders debates, most remain ignorant of what the parties actually intend to do. Many are also meeting candidates they have never seen before. Some one hundred and fifty MP’s retired, the largest number to leave politics at the same time in over a century. Trusted local MP’s are no longer there, so uncertainty is increased. The poll is on May 6th – there is a lot yet for the candidates to do to get their message out.

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