In my chats with chief executives over the past couple of weeks, I’ve been trying to gauge the mood of the business community ahead of the general election. It has been difficult, frankly, to eke out even a scintilla of emotion from them: no excitement, no optimism, no fear, no concern. They feel there is virtually nothing to get exercised about. Not one of the chief executives I spoke to could point to a policy announcement that they could get behind — mainly because there have hardly been any.
The boss of one high street chain put the problem to me succinctly. There will be a wider range of policy changes to come after, rather than before this election, he said, but no one quite knows what they are.
There is a growing sense that our main political parties are not being straight with us about the fiscal constraints and trade-offs we face at this election. Labour’s shadow chancellor Rachel Reeves has promised more investment, but at the same time vows not to put up income tax rates and to stick to Chancellor Jeremy Hunt’s fiscal rules — something which seems hard to pull off all at once.
Meanwhile, Rishi Sunak dangles the prospect of tax cuts while pledging to increase defence spending — a move which looks impossible to deliver on without deep cuts to public services.
There are two reasons our politicians are light on detail about how they plan to balance the books if elected. The first is that their fiscal wiggle room is extremely narrow. At more than £100 billion a year, debt interest is now the single biggest expense for government finances after the NHS. And following the disaster of the mini-Budget, no one wants to upset the bond markets again. That means you need a magnifying glass to spot the differences in spending plans between the two main parties. The Institute for Fiscal Studies has had a go, and it reckons that debt as a share of income would be — wait for it — a whopping 0.3 per cent higher under Labour by 2027.
The second is that there remains a lot of uncertainty about the future of the economy in the near-term. There are signs of green shoots: the highest GDP growth in two years, inflation levels back down to normal, strong wage growth, rising exports and expectations of an interest rate cut or two in the next few months.
But people are yet to feel the effects of these, and it is too soon to know if the economy has properly turned a corner. If these green shoots prompt the OBR to revise up its forecast for economic growth, then a future Starmer government is given a bit more headroom to open up the taps on spending.
But if things stay sluggish and the OBR’s forecast is revised down, then an eleven-figure black hole will suddenly open up in the public finances and Reeves will have to scramble to fill it. It is hard to see how that will not mean tax rises of some kind or another — an extra five per cent on capital gains tax, say, or a tinkering of the bands, if not the rates, of income tax and national insurance.
But no one wants to talk about that. Sunak, with his £2,000+ tax burden under Labour invention, tried but has only muddied the waters further.
“You can imagine a new chancellor coming in, being presented with these figures, saying ‘things are much worse than we thought, we’ll have to put taxes up’,” says Paul Johnson of the IFS. “I have to say I will be really quite rude if that happens.” He will not be the only one.
