U.K. Opposition Outlines Eight-Point Plan for Economic Recovery Ahead of Mid-Year Election

The U.K. centre-right opposition Conservative Party yesterday sought to present its definitive plan to sustain an economic recovery. In a keynote speech, shadow chancellor George Osborne presented an eight-point economic plan. This is in part aimed at fighting back against recent claims that the Conservatives had gone soft on economic policy and would fail to introduce the spending cuts needed to reduce the inflated £178-billion (US$284-billion) budget deficit should it win power at the forthcoming election. Osborne's plan is also an attempt by the Conservative Party to regain credibility on economic policy following a series of gaffes and last-minute policy changes in recent weeks. The most high-profile involved statements by Conservative leader David Cameron indicating that he would not make "swingeing cuts" in the 2010–11 financial year. This appeared to partly go back on previous pledges to make early major inroads into the high public deficit and inevitably raised concerns and uncertainties over the Conservatives' approach to tackling the dire government finances.

An Eight-Point Plan for Economic Stability

At the heart of the Conservative programme is a plan to put savings back at the core of British culture and to encourage citizens to increase their savings in a bid to reduce the soaring levels of public and household debt. The plan also includes points such as ending state hand-outs to regional administrations and the encouragement of a private-sector-led recovery.

• Macroeconomic Stability and Credibility: Osborne pledged to ensure that the United Kingdom's AAA sovereign credit rating is preserved by working to eliminate a large portion of the structural deficit by 2015. This has become an increasingly hot topic since the three main credit rating agencies issued a warning that the U.K. government needed to present a coherent and detailed plan for reducing the public deficit or else risk having its top-notch credit ratings downgraded. Although this is a solid aim, and one firmly in line with the concerns of business and the public, Osborne failed to present clear details on the cuts, simply stating that if the Conservatives were elected to power at the next election, they would present a new budget (including public spending cuts) within 50 days of taking office.
• An Economy in Balance: Osborne stated that he would seek to increase exports, business investments, and savings as a proportion of GDP. Although this is a commendable and much-needed ambition in order to reduce the massive levels of household debt in the United Kingdom, there was little indication as to how it would be achieved.
• Reduction in Youth Unemployment: The goal of increasing employment levels and thereby reducing pressure on the welfare state and public spending in the long term is not new to the political agenda. However, the crucial question of how much this would cost in the short term has not been answered, and neither has the question of where the money for such schemes would come from if the Conservatives are planning to make substantial cuts to public spending programmes.
• Increased Competitiveness: The Conservatives are looking to increase the United Kingdom's competitiveness rankings for tax and business regulation, thereby making the country a more attractive investment destination. Although increasing competitiveness is a logical step towards increasing the attractiveness of the U.K. economy, it is likely to be harder to achieve given contrasting aims. In recent years, the United Kingdom has taken steps to adjust non-domiciled taxation rules in favour of the state as well as increasing the highest level of income tax to 50%. These actions were taken by the current Labour administration. However, further tweaks to the system, even if they are in favour of businesses and entrepreneurs, are likely to simply cause more confusion. Furthermore, reductions in the tax levels charged are likely to prove difficult given the budget deficit. Finally, ambitions to make U.K. regulation more competitive could also prove difficult to achieve in light of the increased pressure on politicians in the wake of the global financial crisis to increase regulation.
• Greater Focus on Areas Outside London: Osborne has stated that he would work to increase the attractiveness of locations outside of the capital, London, to businesses. In effect, he would seek to increase the private sector's participation in the economy in all regions of the country—especially those outside the already prosperous London and south-east. Ridding the country of regional inequality would be a mammoth task, with the majority of similar initiatives having failed in the past.
• Reform of Public Services: An inevitable part of any election campaign is a pledge to improve education and the National Health Service (NHS). However, the Conservatives' ability to make drastic improvements in these areas is likely to be constrained by the fiscal realities. As a result, reforms in education and healthcare provision are likely to centre on "efficiency" improvements, which will have only a limited impact.
• Reform of Banking Industry: In a nod to another hot topic of the moment, the Conservatives have jumped on the bandwagon of banking reform, pledging to alter regulation and the structure of the industry in order to safeguard against a repeat of the financial crisis seen in 2008/09. Osborne specifically stated that the tripartite system of regulation, involving the Bank of England, the Treasury, and the Financial Services Authority (FSA), would be abolished in favour of giving the Bank of England sole responsibility. Although this is in line with global trends, the sheer size of the banking industry in the United Kingdom means that the Conservatives will need to tread carefully so as not to alienate bankers. The plans are likely to face stiff opposition from the banks, which have already demonstrated their determination to fight for the preservation of the status quo.
• Environmentally Friendly Policies: The Conservative Party has long been eager to tout its "green" credentials and any economic plan would therefore not be complete without pledges on the environment. Osborne promised that a Conservative government would work to cut greenhouse gas emissions and increase the United Kingdom's share of global markets for low-carbon technologies. Although a solid aim on paper, the reality is that environmental pledges are usually the first to be abandoned when governments are faced with tight budgets and the need for public spending cuts.

Outlook and Implications