In preparation for the election, it is my intention to analyse the economic consequences of the three major British parties (well the two major British parties and the Lib Dems) main policies. I obviously won’t have time to read through all of the manifestos and will only be looking at key points. I am also aiming to do this without party bias. I will not tell you which way I am intending to vote.
In every policy, there is a trade off. I won’t be able to talk about all of the trade offs and which is worth more than which. That is a subjective matter and one that only you have the answers to. If you are a floating voter, then this piece isn’t to encourage you to vote a certain way, but to try and describe some of the economics behind the policies. Unlike the referendum pieces I wrote, which were subjective, this is objective and is being written to inform as opposed to persuade. I will say my opinions and try to justify them, but yours may be different ad that’s why politics is so wonderful.
Please remember THAT I AM BEING CRITICAL and will be critical of all party manifestoes as i present them from a different angle to deliberately make you consider policies and economic effects in a different, more advanced, way
May’s manifesto is very different to that proposed by Cameron. There is less fiscal strictness and goal meeting. However, it is much more authoritarian. In an economic blog, I can’t analyse this properly, but it is one of the most worrying features of May’s persona.
This is an incredibly complex area and I will try and explain it simply. So here goes:
- The tories were going to cap care costs at £72,000 but this is no longer the case.
- People with more than £100,000 wealth have to pay for their care. This will include the value of the person’s house.
- The have to pay for care until their £100,000th pound, so if they have £125,000 they have to pay £25000.
As the person’s house is now included, more people will have to pay for their own care. Again, this isn’t helped by there being a limit.
This means that people would have to pay more for their own care. There is a care problem in this country and paying for it. Therefore, a solution will be required. However, this was very un-tory like in that it targets old middle-class voters (the usual tory demographic). Since the manifesto release, May has changed her mind says that there will be a cap, but hasn’t stated what it is. Therefore, nobody really knows what situation they will be in. However, a person’s wealth is going to be fair more of a lottery than it was before, as May tightens the purse strings slightly.
I haven’t analysed this too much as it is far more of a complex issue and your opinion on this should be based on the extent to which the state should provide care for the elderly. The term dementia tax is somewhat misleading, but it does seem to be a tax on long term illness aimed at the elderly.
May is planning to increase the personal allowance to £12,500. This means that the first £12,500 that you earn is untaxed. She is also planning on increasing the threshold for higher rate to £50,000. This means less tax, but only for the middle class. The increasing of these allowances is May trying to make people feel better off and that their net pay is increasing, even though wages are stagnant. But if consumers aren’t confident with Brexit coming, this won’t get more people to spend as they will just save for a rainly day, therefore the economy won’t grow like she would hope. She also wants to cut the deficit. So any tax cuts (which make it bigger) will be offset by making austerity measures even more severe.
She also wants to spend more on research and development and cheap power and infrastructure for businesses. There is a productivity problem in Britain. We are dreadful at it and this seems to be one of May’s priorities. As I said in the beginning, there is definitely a change in priorities as chancellor Phillip Hammond looks to loosen the purse strings.
May is looking to carry on the dangerous rhetoric of the conservative party conference by basically increasing a migrant tax on firms who employ immigrants. This is economically, as well as ethically, stupid as firms should be able to employ whoever is best for the job. This will make companies more efficient, productive and able to provide higher quality goods and services. This is nothing more than UKIP Lite populist rhetoric. When an immigrant works, they produce more, gain a salary and spend it. The money goes back into the economy providing more demand for goods and more employment. This shows that the idea that immigrants means less jobs for British workers is flawed.
She will also cut corporation tax to 17%. This is something that she has already promised and will do by 2020. This is in order to get firms to invest more into the UK. This, no doubt, seems more important as we would most likely leave the single market. While this may entice some firms, with the potential WTO tariffs being greater, it is probably not enough to keep some of them. Furthermore Ireland, an English speaking member of the single market, have a corporation tax rate of 12% (not even that for some), therefore firms would likely be more tempted to go over there if they felt tax was the biggest priority for them. Another worrying trend this shows is a race to the bottom. Countries, particularly in the developing world, are lowering corporation tax rates in order to gain investment. This is worrying as some countries are at almost 0%. A race for this, which Britain probably don’t need to enter with a well trained workforce, would have a real damaging effect on long run tax receipts as all other countries also lower their tax rates, leading to this general fall. This makes all countries worse off in the long run and is a very dangerous game for Theresa May to play.
Another way that May hopes to encourage foreign firms to come to the UK is by lowering regulation. She says this will save the UK £9 billion as she implements the one in two out rule. This means that for every piece of regulation passed, two will be repealed. While some argue that regulation is only bad for companies, others can argue that it guarantees a higher quality of products. Furthermore, any company that exports to the EU will still have to follow EU regulation for those goods, even if May repeals them for domestic goods, thereby not making life simpler for those firms.
May is also playing with fear of the foreign firm. In response to Kraft’s hostile Cadburys take over, she wants to change mergers & acquisition laws. As these represent a large proportion of foreign investment, the importance of these laws is great. She wants bidders to be clear about their intentions and to have the legal power to get them to uphold said intentions. This is after Kraft said that Britain would get more net jobs but didn’t after they shut down the Cadbury’s factory. This could lead to less firms willing to invest in Britain, or could have a positive effect of meaning that only good firms invest. However, as situations change all of the time and this ties the hands of businesses, this would most likely harm investment into Britain.
She does want to simplify the tax system. This is actually a good policy as it makes sure people don’t overpay and underpay and have a greater understanding of what they are paying. It also makes it much tougher to avoid tax. She is also banning the “you’ve been hurt in accident” calls which is a shame as I can’t get my £1million every couple of weeks as I am told.
Over the past couple of years, I have said that Brexit is a fundamentally bad thing. Scroll back through the blog if you want to know why, but this argument will still hold that reasoning.
Theresa May wants to pursue a hard Brexit. This means leaving the single market and customs union. This is the most harmful type of Brexit possible as exporters now have to compete with high tariffs to pay. This will lose investment as big firms will seek to relocate abroad. She wants a “deep and special relationship”, but again this is just rhetoric and actually means absolutely nothing. She will give both houses a vote, which she has to anyway after Gina Miller’s court case.
She will look at schemes to contribute to over the next few years. Again, she is saying an awful lot of nothing. She will turn UK law into EU law and allow parliament to amend it from there. She is not guaranteeing committing to safeguards. So again, she is just saying nothing.
May wants to create a trade network and replicate all EU free trade deals. But she seems deluded. It is incredibly difficult to set up a trade deal of any kind. For a clear example google CETA. Anything can make it fall through and it takes many years in order to get one trade deal executed. This attitude and style she is going with could lead to many years of economic suffering and a lack of growth.
Good news: We remain part of the European convention of human rights
Bad news: We repeal the human rights act.
Theresa May is saying lots to soften it out, but it is clear that she wants a pretty shit Brexit.
This is only the start of the manifesto watch. Over the next week I look at them in more detail. Here is the plan for the week
Labour Part 1 2/6 (Workers, Brexit, Tax)
Conservative Part 1 3/6 (Business, Brexit, Tax, Social Care)
Labour Part 2 4/6 (Education, Environment, Social Care, Brexit, Migration, Energy, Housing)
Conservative Part 2 5/6 (Workers rights, Immigration, Education, Pensions … TBC)
Lib Dem 6/6 (TBC)
Generic Endorsement post 8/6 (TBC)