Conflict between the Main British Political Parties over the Future of Economic Policy

How much political conflict exists between the main British political parties over the future of economic policy?

There has always been some form political conflict between the main British political parties over the subject of economic policy. Even when there was a general consensus between Labour and the Conservatives – from 1945 to the late 1970s when they were both committed to Keynesian economics – there were some aspects of their policies where there was conflict. Under the leadership of Margaret Thatcher in the 1980s, the two main parties moved in different directions, with the Conservatives taking a laissez-faire approach and Labour moving sharply to the left. In the mid 1990s, they both moved closer together, concentrating on supply-side measures. Since the 2007 economic crisis, there has been an increasing amount of conflict between both main parties and the Liberal Democrats on how best to deal with the recession and its aftermath. As the economy still remains in a very poor state, there still remains much conflict over how to improve its state.

One major policy area where there is both consensus and conflict is the area of taxation. The general consensus between the main parties is to lower taxes – this would boost consumer spending which would help stimulate the economy. In regards to income tax, both parties favour a two-tier taxation system, with the progressive reduction of the taxes of the lower tier. Despite these similarities between Labour and Conservative taxation policy, there are also some significant differences. The Conservatives have a preference for indirect taxes as the New Right thinks that direct taxation is harmful to personal initiative and thus has a negative effect on the economy. The conflict between the parties on the issue of indirect taxes could be illustrated by the changes in VAT. Originally at 17.5%, the Labour government reduced the standard rate to 15% in December 2008. Even though this was later raised back up to 17.5% by the Labour government, it showed that Labour does not see raising indirect taxes as the best way of improving the state of the economy. The Conservatives, however, increased the standard rate of VAT to 20% in January 2011, showing that they see raising indirect taxes as a possible way to revive the economy. Another area of conflict within the issue of taxation is taxation of the wealthy. Labour think that the economy would benefit from excessive taxation of the wealthy, whereas the Conservatives do not think it is fair on the wealthy if they have to pay a much greater proportion of their earnings. The Conservatives attitude to taxation on the wealthy is shown by their dismissal of Liberal Democrat plans for a Mansion Tax and the reduction of income tax for workers earning over £130,000 from 50% to 45%, which is to be implemented in April 2013.

The Labour government and the Conservatives had different reactions to the post 2007 economic crisis. Labour returned to Keynesian economics, thinking that government intervention, for example nationalising failing banks, would be the best way to recover the economy. They aimed for Britain to borrow its way out of recession. By raising public expenditure and cutting taxes they hoped to boost the economy so that it would come out of recession as quickly as possible. They accepted that taxes would have to rise in the future but hoped that by then the economy would be in a good enough state to cope with the tax rises. As the Conservatives are against too much government intervention, they opposed proposals to intervene in attempts to save failing major businesses. Unlike Labour, they proposed to reduce public expenditure in order to prevent too much debt; this would allow for tax cuts in the future. The reason for this was that they felt that there had been excessive government spending in the past, which had contributed towards the government’s debt. Additionally, they proposed to curb the excessive rewards offered to high earners in the financial sector. They also proposed much stronger regulation of the banking system, despite their dislike of government intervention.

Once the Conservative-Liberal Democrat coalition came into power in 2010, they took a different approach to the Labour government before them by introducing the government austerity programme – a series of reductions in public spending intended to reduce the government deficit. The government has recently announced a further £10 billion cut from the benefits budget to help fight the deficit. This has created some conflict within the coalition, with Nick Clegg saying that the cuts will affect the poorer members of society before the wealthier, whereas he thinks that wealthier people need to pay more before any benefits are cut.

In conclusion, there will always be some form of conflict between the main political parties over economic policy, despite there sometimes being a consensus over certain areas of policy. There will likely always be conflict over some principles, such as Labour being much more in favour of government intervention than the Conservatives, but some party policies may change due to factors such as the state of the economy, which could then cause conflict between parties, or even within a government as seen with the coalition. From looking at both the past and the present, it seems that the more stable the economy, the more consensus there is, and the weaker the economy, the more conflict there is.