(7.30 update) Election comment: Terry Murden
The economic tests facing the incoming government
It was always the economy that swung elections. Not immigration, Europe nor the constitution. Yet this time it has played a lesser part in the debate, with financial matters focused in the main on the public finances, managing the deficit and the NHS.
Enterprise, wealth creation, business growth…they have been unheard, save for the Tories plan to put Lloyds back in private hands through a public share issue.
Once the new government is formed, the economy will re-take its place at the heart of political life as some changes already emerging become more significant. John Cridland, CBI Director-General, the government “to prioritise pro-enterprise policies that boost growth and jobs for all.”
Markets are already volatile, with a bout of bond selling seen to be spurred by forecasts that oil prices are rising and inflation could be about to make a comeback. This will make bonds less attractive, so investors have been trying to offload them, forcing down the price.
The end of ‘noflation’ will cause some discontent among workers and consumers who have enjoyed the benefits of zero inflation. If prices start to rise it will see the cost of living starting once again to outweigh pay and potentially signal more industrial unrest.
The oil price dip seems to be over. Brent Crude slumped from $110 a barrel last June to around $40 earlier this year, but is now almost back to $70 a barrel.
If it continues to rise it will encourage the Scottish nationalists to believe their dream of an oil-funded welfare state is back on the agenda and their demands in any negotiations with Westminster will focus around an increasing confidence that they can go it alone north of the border.
The eurozone is still at risk of unravelling as the Greek crisis shows little sign of being resolved any time soon. To what extent a Greek exit would impact on Britain is arguable, though the collapse of the euro project itself would have serious implications for trade.
More directly concerning Britain is Mr Cameron’s promise to hold a referendum by 2017 on whether or not the UK should remain a member of the European Union, which it joined in 1973.
There is the ongoing argument over austerity and whether the new government should step off the gas and ease up on cutting the deficit.
This was preferred by Labour and the SNP, while the Tories, backed by the main business organisations, now have a mandate to continue cutting the deficit. One argument for doing so is to cut the government’s interest payments and divert more public money into projects such as infrastructure.
The calls for an end to austerity and for increased spending implied higher borrowing. Those backing the continued drive on the deficit say the country cannot afford more borrowing and must cut the deficit before spending again.
Business generally supports cutting the deficit, but the Conservatives have done themselves no favours by telling the public “we are all in this together” and then loading the burden for the cutbacks on the less well off.
The party will do well to tackle this imbalance and injustice. It would help rid them of their reputation for being the ‘nasty party’.
The biggest of all challenges in spreading economic benefit around the UK. The Conservative party has not only failed in Scotland, it is marginalised in other parts of the UK, notably the north of England.
It is difficult to see how prosperity can be shared more equally without changes in the political make-up of Britain. Short of independence for Scotland, a more federalised structure would devolve power to the regions. Some would argue that a federal plan for government some years ago may have quelled the nationalist uprising and led to a more settled kingdom.