Countdown to UK elections
May 4, 2015If there's one thing markets and investors could do without, it's uncertainty. Yet in the run-up to the closest election the United Kingdom has seen in nearly two decades, Britain's financiers seem remarkably calm even as uncertainty abounds.
No party has managed to secure a solid and sustained lead in the polls and most people are expecting a hung parliament followed by weeks of political horse-trading. Warnings have emerged of a possible economic slowdown if coalition negotiations become too protracted.
There's also the looming prospect of a Brexit - a British exit from the European Union - the likelihood of which increased when Conservative Prime Minister David Cameron promised to hold a referendum on the matter by 2017 if re-elected.
Yet as polling day draws nearer, prophecies of market turbulence have gone largely unfulfilled.
Shares in top British companies are up roughly 8 percent since the beginning of the year, reaching new highs, and 10-year borrowing costs are still within half a point of January's record lows. Even the pound rose to a five-week high against the dollar to just under $1.53 before falling back down to $1.51.
With the election outcome still a big unknown, some businessmen and bankers have staked out clear positions as to which outcome they would prefer. Most of the UK's richest asset holders oppose a referendum on Britain's EU membership, but they are also wary of a Labour government they fear would levy bankers' bonuses and raise income tax for the wealthy.
Economic concerns
The economy has played a central role this election season. After five years of stagnation, austerity and a gradual recovery, major parties are promising to bring down the deficit and lift living standards.
The Conservatives have pointed to an unemployment level that has fallen to its lowest mark since 2008, at 5.6 percent, with Cameron speaking of a "jobs miracle." They have also touted a real increase in wages - 1.8 percent in the three months to February compared to one year ago, while inflation stood at 0 percent.
Cameron, who presided over a rapid economic rebound that saw him deliver one of the fastest rates of growth in the world, has promised to "finish the job."
Labour put a different spin on employment figures, lamenting the Tories' failure to raise living standards despite creating more than 1.5 million new jobs during Cameron's five years in office. Many businesses still relied on an underpaid and underemployed workforce and real wage growth has only just begun to take off, meaning most ordinary voters haven't yet felt much of the recovery, Labour's frontrunner, Ed Miliband, has said.
Economic data released last week seemed to strengthen Labour's position, showing GDP growth in the first three months of the year at its weakest level since 2012. That data was compounded by more disappointment in industrial and construction sectors, which could help sway voters come polling day.
A lack of detail
With just days to go, Britain's two largest political parties are neck-and-neck in the polls. The release of the major parties' manifestos in early April did little in the way of winning undecided voters over to any one side, likely because none of the parties provided a very detailed picture of how they plan to manage the public coffers after the election.
The Conservatives, Labour and the Liberal Democrats have all made grand claims about reining in the UK's budget deficit, but many of those claims are predicated on overly optimistic accomplishments, such as reducing fraud and human error or combating tax avoidance, one research institute concluded after analyzing the parties' manifestos.
"All the parties have told us where they are going to increase things, and none of them have given us much detail about where they are going to make people worse off," the director of the Institute for Fiscal Studies, Paul Johnson, said as he presented his organization's findings.
Conservatives
The Conservatives, for instance, have sworn to fully eliminate Britain's budget deficit by 2018 and bring about a surplus through deep spending cuts that would amount to 5.2 percent of national income. They have also committed themselves to a "five-year tax lock," promising not to raise income tax rates, value-added tax or national insurance, a levy on payrolls.
Their pledges echoed similar ones made five years ago, when the Conservatives aimed to overcome the budget deficit but were unable to deliver as the European debt crisis struck. At the time, Cameron also had to renege on promises not to raise VAT, hiking it by 2.5 percentage points.
Cameron also pledged to raise the income tax threshold to 12,500 pounds by 2020 and make it easier to become a homeowner in a high-priced market through a combination of subsidies and discounts.
Labour
Labour has similarly expressed plans to balance the budget and eventually achieve a surplus, although it hasn't committed to a specific deadline. According to the IFS, Labour's plans suggested a reduction in borrowing of 3.6 percent of national income. If that proves true, then their plans wouldn't require much in the way of spending cuts. Labour's plans do, however, include some small net tax increases.
Labour has also said it wanted to solve the country's housing dilemma and pledged to build new homes. Miliband has also promised to peg rent rises to inflation and promote house construction in the private sector, building at least 200,000 homes a year by 2020. He has also pledged to eliminate taxes associated with purchasing new property for first-time buyers.
The Liberal Democrats
The Liberal Democrats, the Conservatives' junior coalition partners in the last government and a party that prides itself on being a middle-of-the-road option for voters, suggested in their manifesto that they were aiming for budget consolidation of 3.9 percent of national income - more than Labour but less than the Conservatives.
Those plans would require slashing some departments' budgets by 12 billion pounds and they also want to cut social security spending. By the end of the next parliament, the Liberal Democrats said they hoped to raise 10 billion pounds by combating tax fraud - more than any other party.
They have also made clear the areas where they would not budge in negotiations. Those included health spending, more funding for education and higher salaries for workers in the public sector.