What’s At Stake for Britain’s Economy as Voters Go to Polls Today?

December 12, 2019

The two main parties in Britain’s election on Thursday offer contrasting plans on spending, tax, the role of the state, trade unions and Brexit.

Below is a summary of the main economic policies of Prime Minister Boris Johnson’s Conservative Party and Jeremy Corbyn’s Labour Party.

SPENDING

Johnson is already loosening the purse strings after nearly 10 years of cuts for many public services. He approved the biggest rise in day-to-day spending in 15 years in September.

But proposals in the Conservatives’ election manifesto for further funding increases are modest and would mean continued austerity for many services outside the health system, according to the Institute for Fiscal Studies (IFS) think-tank.

Labour’s spending plans dwarf Johnson’s.

Corbyn wants to reverse cuts to services such as the police and give public workers a 5% pay rise, which would push day-to-day spending up by 82.9 billion pounds ($106 billion) a year by 2024. The equivalent increase in the Conservatives’ spending plans is 2.9 billion pounds.

On investment, the difference is smaller but still stark. Under the Conservatives, it would rise by about 20 billion pounds a year, or a third of Labour’s planned increase.

The IFS has said Labour’s plans are too big to implement, at least in the short term.

TAX

Johnson would gradually increase the threshold at which workers pay social security contributions. He has also ruled out increasing income tax and Value-Added Tax.

Corbyn has said Labour’s spending increases will be funded largely by higher taxes for companies and people in the top income bracket.

The IFS has said both parties would probably have to raise taxes further, or borrow more, if they stick to their plans.

Labour’s left-wing leadership wants to put the state back at the center of Britain’s economy.

Plans to nationalize power networks, water, rail and postal companies expanded last month to include the fixed-line network of telecoms group BT to give free broadband to everyone.

Labour says workers in large companies will get a 10% stake via Inclusive Ownership Funds which would share profits with staff and pump money into government apprentice schemes.

Johnson favors free market policies but he has proposed new state aid rules, changing state purchasing policies and reforming farming so public bodies buy more British goods.

Labour has promised a “huge roll-out of individual and collective rights” to give more power to unions.

BREXIT

Britain’s relationship with the European Union will have a major bearing on the economy.

Johnson wants to leave by Jan. 31 and secure a trade deal with the bloc by the end of 2020 when a transition period ends, meaning tariffs and other barriers to trade could come into force for British goods and services.

Johnson says ending the Brexit uncertainty would “unleash a great tide of investment” and boost the economy.

However, getting a new deal done before the end of next year is seen as tough given the complexities of trade negotiations.

Corbyn says he will negotiate a new exit deal and put it to a referendum, raising the prospect of Britain reversing its Brexit decision altogether.

The finance ministry estimated in 2018 that striking a free trade deal with the EU would reduce the size of the economy by about 5% by the mid-2030s compared with staying in the EU.

Labour’s proposal of remaining in an EU customs union with close alignment to its single market is widely seen as being less damaging to the economy. ($1 = 0.7794 pounds)

(Reporting by William Schomberg; Editing by David Clarke)

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