A brief analysis of the 2015 Conservative manifesto from an economic and financial point of view

The main economic pledge made by the Conservatives is to eliminate the deficit by 2020 and to be running an overall surplus by that time. Judging by the Conservatives’ last five years in charge, this seems to be a very real prospect. It is true that only when you eliminate the deficit that you can start eliminating the national debt, and Cameron seems very well on the road to that. In my opinion, he is the perfect antithesis to Labour, and the note that said “we have no money” which he so religiously parades, and with good reason! In this regard, Cameron in power is very good for the country. Politicians have a reputation for lying and breaking promises, however, this is one that Cameron has not broken in the past five years and hopefully will not repeat if he is declared incumbent on May 7.

However, some aspects of the manifesto are largely unsubstantiated, such as the pledge to give £8 billion a year to the NHS till 2020. This seems all very well and good on paper, but when you actually analyse this, you come to the ironic fact that if you would ask a Conservative about this in 2017, for example, they would respond with the words of that Labour note: “I’m sorry, there is no money”. In this regard, it feels like Cameron is simply trying to garner more votes and will not actually carry out this pledge if he is declared incumbent.

Having said this, the Conservatives seem to be the party of the working people, yet again, as evidenced by Cameron’s pledges to raise  the personal allowance to £12,500 and  the 40% tax threshold to £50,000. In addition to this, he also wants to reduce the benefits cap. This means that if the Conservatives are declared incumbent on May 7, that the working people will benefit the most from Cameron’s pledges, however not so much the non working contingent, who are reliant on the state. This is the reason why this sector of the population are largely voting Labour, as reducing the benefits cap is a massive no-no to them.

If you are working, however, you would welcome with open arms their pledges regarding the personal allowance and tax threshold. Simply, this means that you get to keep more of your own money, and thus have more disposable income to spend on necessities and the occasional luxury. This is a superb idea, which means that the working person is rewarded for his or her work more, and might be the one which swings the Conservatives into power once more.

Cameron also pledges no rise in VAT or national insurance contributions, which the majority of the public will swat away with ease, for he said this exact same thing five years ago, and within a matter of years, VAT was raised to 20%. As such, this policy which reads good on paper could actually be a detriment to the Conservatives, as people will see them as the same old party, who definitely will not be fooling the public again.

3 Comments Add yours

  1. Jono says:

    And for balance…
    It isn’t a real prospect at all, and especially not when you look at their record in government, given that in 2010 they said we’d be in surplus now, not in 5 years, and instead they’ve reduced it by a half (and only by a third in nominal terms). The IMF have said recently its not in any way realistic. The IMF recently also praised the policy of balancing growth and deficit reduction, which has been lauded as a plus for the government, but ironically proves they were dead wrong. Balancing growth and deficit reduction is exactly what Ed Balls was saying in 2010, before the Coalition decided to cut too hard and too fast, taking the growing economy they inherited and crashing it. The IMF who initially supported this idea, despite the fact that the majority of macroeconomists did not (and even less do now), changed its tune in 2012 saying it underestimated the damage austerity would cause, and revising up their fiscal multipliers above 1). Martin Wolf, chief economics editor at the Financial Times was also very scathing of the governments handling of the economy. It appears the Conservatives intend to do the exact same thing again, making them either incredibly stupid or idealogically driven towards the dismantling of the state (I’m guessing the latter). Nick Clegg is right when he says the Tories plans are not a continuation of the current plan. You say you can only reduce the UK’s debts in surplus. The important figure (as with the deficit) is not the nominal figure, but the debt to GDP ratio, and this value can be reduced by growth, even when the government is in deficit, which is exactly what has happened for most years between the second world war and now, and why it’s important to balance the two, becoming more ‘austere’ the better the economy is doing.
    Another way the government messed up was to see the recession as a supply side problem. They thought if they cut taxes to businesses they will engage in capital investment, creating growth and demand, but this didn’t happen, because why would businesses invest to grow their production capabilities when people were trying to spend less (not just here but in the eurozone as well). Instead they took the free money and either sat on it, or invested in financial markets, which were in the process of being inflated by government backed QE, so a much better investment anyway. This isn’t businesses fault, with government slashing away and the eurozone deciding to do the same, it wasn’t a very capital investment friendly time. Its worth noting that like growth, capital business investment was recovering well between the crash and the coalition getting into power. It stalled along with the rest of the economy when they recklessly slammed on the austerity brake.
    To say the Conservatives are the party of working people is just mad given we’ve seen the longest decline in real wages since records began. Per capita GDP is still below where it was in 2006. Productivity is dire. Most people on benefits are in work, the Tories want to cut welfare spending dramatically, despite already cutting welfare spending. The unemployed, vulnerable and disabled have suffered massively under this government, with massive increases in food banks, homelessness, suicide, sanctioning of claimants, successful appeals against negative disability assessments etc. Remember that by raising taxable allowance, that isn’t just a tax cut for poor people, that’s a tax cut for all the people who earn more than them as well, so the very richest will receive two tax cuts, and the very poorest will receive benefit cuts. Job insecurity has also risen substantially, which makes sense given low productivity and falling unemployment. The OBRs forcasts for deficit reduction also rely on working people getting into greater and greater debt, which was the cause of the 2008 crash, not government debt which was at historic lows before the crash. This debt is also behind the increase in consumer spending (demand) which brought us the recent recovery (because it was a recession of demand not supply).
    Despite all of this, the main reason I won’t be voting Tory is the NHS, which they effectively abolished in 2012. They had planned this before the election, despite telling people there would be no top down reorganisation of the NHS. They removed the duty on the secretary of state for health to provide comprehensive healthcare for all. In other words Jeremy Hunt has no obligation to provide universal healthcare. Why would they do that, unless they weren’t planning on providing universal healthcare for all free at the point of delivery? They’ve also massively increased the bureaucracy of the health service. NHS productivity has fallen year on year since the plans were put into practice. So much for efficiency savings. In summary the Conservatives are reckless with the economy, reckless with workers, reckless with the most vulnerable and reckless with public services and public assetts.

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    1. To be honest, I don’t think it’s right to say that the Conservatives “are reckless with the economy”, considering their long term economic plan has reduced the deficit by the third. As said in the post, I don’t know if they are going to actually do it, but they are pledging £8 billion extra a year to the NHS. In the past five years, 2 million new jobs have been created, 80% of which are full time, so Cameron has actually done a good job regarding these. Thanks for the comment though – I love reading what you write! 🙂

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  2. Grumpy Dad says:

    Fetishing a single economic measure, such as the deficit, is both dangerous and short-sighted. Over the past five years, productivity growth has flatlined and the current account deficit has swollen alarmingly. These are both worrying trends: the first because the new jobs created are less productive than they should be which will continue to keep downward pressure on real wages; the second because a large current account deficit leaves us vulnerable to changes of sentiment in the international capital markets that are currently financing the country.
    Of course the increase in employment is welcome, but the nature of the jobs means that many of the people filling them will pay very little, if any tax and indeed the cost of “in-work benefits” is likely to rise.
    So even if you are willing to accept that the outgoing government’s promise to “eliminate the bulk of the deficit”, made 5 years ago, has worked (which requires a very loose definition of the word “bulk”) and therefore to accept their repetition of the pledge this time around, it is important to include other factors in the analysis.

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