Friday, 16 April 2010

UK Election and Economic Policy

Nat O'Connor: Beyond the glitz of party leaders in TV debates, the very fact of a UK general election is likely to influence Ireland. Election fever in the UK, and its echoes in the media here, may or may not put psychological pressure on the Government and its narrow Oireachtas majority. Regardless, it is near certain that the UK election will be fought on the economy and this should present people in Ireland with a more robust discussion of economic policy options than have been presented domestically (albeit for the UK's recovery and future rather than our own). From that point of view, it is interesting to see what the main parties are proposing.

The BBC provides a General Election page where summaries of the policies of all the UK's parties can be compared, with links to their full manifestos.

I won't repeat the details here, but familiar questions arise in the UK debate: How fast to cut the deficit and national debt? What efficiencies and cuts in public service can be made without impairing frontline services, especially health? What minor tax/social insurance changes can be made to raise revenue and/or promote economic activity? What further reform of banks is required? Should banks' retail and investment arms be separated? etc.

There are not too many new suggestions, even from beyond the main threesome. The Greens are championing Tobin Tax (aka Robin Hood tax) on financial transactions. UKIP have taken up the flat tax argument (replace all income tax and national insurance with a single rate of tax). Plaid Cymru propose to "create a council of ministers, business leaders, industrialists and trades unions leaders to take a strategic overview of debt reduction". The Scottish Socialist Party propose replacing Council Tax with an income-based "Scottish Service Tax".

The DUP are contining their policy of a business rates freeze, whereas Sinn Fein want to "force banks to allow mortgage holders to reschedule repayments and allow movement from fixed to variable rates without financial penalties".

Meanwhile, the newer TUV (Traditional Unionist Voice) "Oppose moves towards an all-Ireland economic policy" but "believe that a 'low taxation economy', with 'optimum business freedom', will maximise growth." So what part of Southern economic policy are they not converging with?

The third TV leaders' debate, to be held on BBC 1 on Thursday 29 April, will focus on the economy. The BBC will also be hosting a debate between Northern Ireland's party leaders, which may give insight into the future policies likely to be adopted by Northern Ireland's Assembly.

1 comment:

Michael Burke said...

Nat, one intersting feature of the British election scene is that there is a political consensus that spending cuts will be made in future, with all 3 hopefuls as Chancellor agreeing with a studio question on whether they would indeed be 'worse than Thatcher'.

This is despite the fact that the previous stimulus of 2009 worked, softening the downturn and lowering forecasts for the deficit (as well as lowering bond yields).

Some on Right have argued that this is a misrepresentation, as both spending, and the deficit continued to rise under Tharcherite austerity of the early 1980s.

Sound familiar?

Over on Irish Economy, Colm Mccarthy can occasionally be found arguing that there were no cuts in the 1980s.....because spending continued to rise. 'Mac The Knife' is a myth, don't you understand?

Both the Thacherite Right and their Irish co-thinkers fail to distinguish between action and consequence. Of course there were savage cuts in both countries. IMF research assesses Ireland's experience then as the longest fiscal austerity drive in the post-WWII history of leading economies.

However, in both instances, the deficit and spending continued to rise. The Thatcherites and their Irish camp-followers have failed to grasp this basic tenet of public finances; cuts in government spending lead to increased outlays in other areas.

This is in addition to the negative consequences on government revenues arising from demand-crushing spending cuts. In this way, it is possible to deploy savage cuts and still see both spending rise and taxes lowered, so that the deficit rises. This is exactly what is happening in Ireland now.

The first time as tragedy, the second time as farce.