Long term decisions for a stronger economy
As explained in the previous post, Rishi Sunak has laid out a five-part strategy to boost Britain's economy. This post explains the strategy in more detail and contrasts the Conservative and Labour plans.
- The central purpose of the Conservatives' economic policy is to give people the opportunity to build wealthier, more secure lives for themselves and their families.
- At the start of this year, we committed to halve inflation – because inflation is a tax that erodes that dream, driving up the cost of the weekly shop and mortgages, eroding hard-earned savings and pensions.
- We have delivered on our commitment and halved inflation, which has fallen to 4.6 per cent. This is the largest fall in inflation since the start of the 1980s, down from its peak of 11.1 per cent last year.
- With inflation falling, and global economic conditions stabilising, we are now able to change gear and turn our attention to the long-term decisions required to strengthen our economy and build a brighter future.
- As we do so, the country faces a critical choice about our strategy for the economy and the role of government within it.
- Labour think we must continue with the big government, high spending, high borrowing, and high tax approach we had to take to get us through Covid and the economic shock from Putin’s war, based on the fairy-tale idea the idea that someone sitting in Whitehall can plan and direct the whole economy, assisted by tens of billions of pounds of spending with no plan to pay for it.
- We will offer a fundamentally different approach. An approach that believes that as we move on from the twin shocks of Covid and the energy price spike, we must take the chance to control spending so we can tax less. That gets inflation down and keeps it down. That believes the private sector grows the economy and where government has a role, it must be limited. And in doing these things, an approach that allows us to grasp the unprecedented opportunities of the new wave of technology, to unleash the dynamism of the private sector and all the jobs and growth it will bring.
To do this, we will take long-term decisions in five critical areas:
- Reducing debt: we will get our borrowing and debt down, taking difficult decisions in the short-term to do what is right in the long-term. That will help keep inflation falling, get mortgage rates back down to affordable levels, and ensure that people have the financial security they need.
- Cutting tax and rewarding hard work: we can’t do everything all at once and will need to prioritise, but over time we will cut taxes in a serious, responsible way. We will also encourage more people into work and clamp down on welfare fraudsters, allowing us to better support those genuinely in need of a safety net.
- Building domestic, sustainable energy: energy security is essential for growth, which is why we are building domestic, sustainable energy – with new nuclear power stations, granting new North Sea oil and gas licenses, putting record investment into renewables, taking a pragmatic approach to Net Zero, and upgrading our electricity grid infrastructure.
- Backing British businesses: we have already increased public investment in infrastructure and R&D, cut Brussels red tape, and signed trade deals so that businesses can grasp the benefits of Brexit. But we need the private sector to invest too, so we will prioritise cutting taxes directly on business investment which is what businesses say will make the biggest difference.
- Delivering world-class education: we are delivering higher standards, more teachers and more apprenticeships. We’re doing that by scrapping rip-off university degrees, creating the Advanced British Standard, putting technical education on an equal footing and increasing time spent in the classroom.
We have restored economic stability and laid the foundations for long-term sustainable growth:
- Despite being told it wasn’t possible, we have delivered on our pledge to halve inflation, which has fallen to 4.6 per cent – the largest fall in inflation since the start of the 1980s, down from its peak of 11.1 per cent last year. The OECD predict we will see lower inflation than Germany, France, Spain, and the Euro Area next year and the IMF credited us with having taken “decisive and responsible” action to bring down inflation – as we took a responsible approach to the public finances and eased pressures in the economy by securing our energy supply and getting more people back into work. We have delivered this despite the IFS, Resolution Foundation, and the NIESR all predicting that we wouldn’t halve inflation this year.
- Since 2010, the UK has seen the third highest rate of growth in the G7 – faster than Japan, Germany, France and Italy. Our economy has proven itself resilient – the OECD upgraded their growth outlook for the UK by 0.5 percentage points this year and neither them nor the Bank of England are predicting recession, unlike in Germany. The chief economist at Panmure Gordon described the revisions to British growth as ‘extraordinary’, saying that ‘the entire UK economic narrative, post-pandemic, has… been revised away.’
- Our cost-of-living support package is one of the largest in Europe, worth around £3,300 per household. This included paying around half of the typical household energy bill last winter, and increasing benefits and pensions in line with inflation, paid for, in part, by our windfall tax on oil and gas producers. We also supported mortgage-holders by providing new protections for vulnerable families from repossession and giving them new tools to manage their monthly payments through our Mortgage Charter, which covers 90 per cent of the market.
We will take long-term decisions in the above five critical areas to unlock economic growth: and here is how Conservative and Labour proposals in each of these areas compare.
1. Reducing Debt
We will get our borrowing and debt down, taking difficult decisions now to do what is right in the long-term – to keep inflation falling, get mortgage rates back down to affordable levels and ensure that people have the financial security they need. We must pay down our debt to make sure we do not leave the bill for our children to pay instead, and that we are able to respond to future shocks. We are making progress on reducing our debt – borrowing in the year to September has come in almost £20 billion less than the OBR's forecast and we are on track to meet our fiscal rule to get debt falling.
By contrast Keir Starmer and Rachel Reeves would embark on £28 billion-a-year borrowing spree that even a former Labour Shadow Chancellor says would make debt rise forever. Labour would also give in to the unreasonable demands of their union backers and borrow billions to fund inflationary pay rises (Source: BBC Radio 4, Today, 9 June 2023, archived; Andrew Neil Show, 27 November 2022, archived).
2. Cutting tax and rewarding hard work
We will cut taxes in a serious, responsible way, as we encourage more people into work and clamp down on welfare fraudsters. While our tax burden is lower than Germany, France and Italy, it is economically and morally right to cut tax. People, not governments, make the best decisions about their money. Now that we have strengthened the economy and halved inflation, we can start cutting taxes. And by reforming welfare, we can incentivise more people into work while better supporting those genuinely in need.
By contrast Labour's unfunded plan to spend £28 billion more would inevitably lead to higher taxes. And Keir Starmer has lost all credibility on welfare after u-turning on a key issue: Universal Credit. First, he promised to scrap it, and then he broke his commitment, saying that would they actually just change its name (Source: The Mirror, 22 December 2021; The Labour Party, A New Deal for Working People, 22 September 2022; The Daily Telegraph, 9 October 2023).
3. Building domestic, sustainable energy
Energy security is essential for growth, which is why we are building domestic, sustainable energy sources, while taking a pragmatic approach to delivering Net Zero that will save families £1,000s. Russia’s weaponisation of energy saw European gas prices soar by more than 200 per cent last year, underlining the need to pursue our Energy Security Strategy, to see investment in our economy, jobs, and Net Zero while protecting the UK’s energy security. We are building new nuclear power stations, granting new North Sea oil and gas licenses, putting record investment into renewables, and upgrading our electricity grid infrastructure.
By contrast Keir Starmer’s policy of banning new North Sea oil and gas licences would jeopardise over 200,000 jobs and undermine Britain’s energy security. Starmer’s plan would increase our reliance of foreign imports and play into the hands of our enemies (Source: The Times, 28 May 2023; PMO, Press Release, 5 November 2023).
4. Backing British business
We need the private sector to invest too, so we will prioritise cutting taxes directly on business investment, which is what businesses say will make the biggest difference. The UK is the best place in the world for businesses to be investing and we have stayed top of the table in Europe for three successive years in securing new FDI projects – our best showing for 10 years. We increased public investment in infrastructure and R&D and cut Brussels red tape to save small businesses millions. And since the introduction of the super-deduction, business investment has grown the fastest of any G7 country. We are also ensuring that businesses can seize the opportunities of Brexit, that’s why we’re doing trade deals around the world – including joining CPTPP.
By contrast Keir Starmer would repeal vital trade union legislation, leading to more strikes from their union paymasters. Repealing the 2016 Trade Union Act would mean unions could strike even if less than 25 per cent of their total members support it and they would no longer have to renew their mandate to strike every six to nine months. This would undermine business and harm growth (Source: Labour Party, Angela Rayner Deputy Leader Conference Speech, 2022)
5. Delivering world-class education
We will give all our children a world-class education. Under this Government, the proportion of schools rated as Good or Outstanding is 88 per cent, up from 68 per cent in 2010 and English schoolchildren are now the best readers in the Western world. We will build on this progress by increasing school funding to over £59.6 billion in 2024-25, the highest ever level of per pupil funding in real terms, and by delivering crucial reforms – scrapping rip-off university degrees, creating the Advanced British Standard, putting technical education on an equal footing with academic courses and dramatically increasing time in the classroom.
By contrast Keir Starmer would halve the number of apprenticeship places, undermining the opportunities of our youngest generations. By allowing businesses to cut their apprenticeship levy contributions, the Department for Education forecast that under Labour’s plans the number of places available would be cut by 140,000. If Labour wanted to cut the levy and maintain apprenticeship numbers they would have to find an additional £1.5 billion every year (Source: The Daily Express, 13 November 2023).