Factbox-From tax to homes, UK’s Conservatives and Labour make economy a battleground for election

By Thomson Reuters May 22, 2024 | 11:45 AM

LONDON (Reuters) – British Prime Minister Rishi Sunak’s Conservatives and the opposition Labour Party will focus on the economy as they ramp up their campaigning for a July 4 national election.

Sunak said on Wednesday that “brighter days” lay ahead after data showed Britain’s inflation rate had fallen to close to 2%.

Labour’s Rachel Reeves, who hopes to succeed Jeremy Hunt as finance minister, said voters remained under financial strain.

Below is a summary of both parties’ economic policies so far, many of which appear similar after opposition leader Keir Starmer shifted Labour to the political centre ground.

TAX – Britain’s tax burden is the highest since World War Two after public spending shot up during the coronavirus pandemic and the surge in energy prices in 2022.

Sunak has sought to create a clear dividing line with Labour, saying he wants to axe all social security contributions paid by workers in the long term.

Labour says that plan is unfeasible. It has vowed not to raise the rates of income tax or corporation tax on company profits. It plans to charge value-added tax on private school fees and to tax the overseas income of British residents who claim non-domiciled status.

But the reluctance of both parties to increase taxes more broadly raises questions about how they can improve public services and repair the public finances.

SPENDING – Hunt has pencilled in future public spending cuts that many external economists say look implausible given the strains many public services are already under.

Hunt says future gains in productivity in the public sector, make his sums add up, but that is a challenge that has eluded previous governments.

Labour promises to improve public services and end under-investment in infrastructure and other areas vital for faster economic growth.

FISCAL RULES – Sunak and Hunt set new budget rules in 2022 after Truss’ short time in Downing Street triggered a bond market meltdown.

The main rule requires public debt to be falling as a share of gross domestic product in the fifth year in official forecasts. The government is only just on course for that target, leaving little room for tax cuts or spending increases.

A second rule states that government borrowing should not exceed 3% of GDP also in the fifth year.

Labour says it will keep the debt target but it will only apply the borrowing rule to day-to-day spending, allowing it to borrow more to fund investment. However, it has dropped a plan to borrow up to 28 billion pounds a year for green investment.

GREEN ECONOMY – Labour wants to decarbonise the power system by 2030, five years earlier than the Conservatives. It would make it easier to build new onshore wind farms, create a state energy firm and a national wealth fund to invest in green technologies.

The Conservatives say the plans will be much more expensive than Labour claims.

Sunak last year delayed a ban on sales of new petrol cars. He said he remained committed to net zero emissions by 2050.

THE EU – Sunak has improved ties with the European Union but Brexit is a drag on the economy. New checks on food imports from the bloc represent a latest hurdle for businesses.

Starmer has promised to improve the relationship from 2025 when the UK-EU partnership deal will be reviewed, but he says he will not take Britain back into the bloc’s single market or a customs union.

HOUSE-BUILDING AND PLANNING – Before the 2019 election, the Conservatives promised to get 300,000 new homes built annually in England by the mid-2020s. But plans to relax planning rules were watered down to avoid upsetting voters.

Fewer than 250,000 homes were built across England, Wales and Scotland combined last year.

Labour promises to overhaul the planning system to accelerate construction of homes and infrastructure. It plans to devolve more powers to local authorities to get projects completed more quickly.

LABOUR MARKET POLICIES – Labour, which has its roots in Britain’s trade union movement, plans to heavily restrict so-called zero-hours contracts, give new hires more protection against dismissal and raise sick pay. It says it will repeal laws restricting trade union activities and promote more flexible working arrangements.

Employers have expressed concern, prompting Labour to promise to consult them on policy. The Conservatives say Labour’s plans would cost jobs and lead to more strikes.

STABILITY – Starmer stresses how volatile British politics has become since Brexit with five Conservative prime ministers occupying Downing Street in eight years. The upheaval has contributed to low levels of business investment. The prospect of greater stability under a Labour government – especially if it wins the big majority in parliament that polls suggest it will – could help to reduce nervousness among investors.

($1 = 0.7849 pounds)

(Writing by William Schomberg and Suban Abdulla; Editing by Alexandra Hudson)