22 May 2024

Election 2024: the big economic challenges facing the next government

Rishi Sunak has called a summer general election for July 4.

Where is the key economic battlefield?

Neil Macdonald: This parliament is being shaped by two genuinely historic economic events, the biggest burst of inflation we’ve seen for 40 years, and of course the biggest drop in national output for three centuries during the lockdown.

But it’s not just those two events, it’s also the two main policies that were adopted to tackle them, which the voters now get to cast their view on. Interest rates, a 16-year high, to tackle inflation, and of course a very sharp increase in the tax burden to deal with the borrowing that came out of helping people during the pandemic and with their energy bills.

Inflationary pressures

Krishnan Guru-Murthy: But they will be banging on about inflation back to normal.

Neil Macdonald: Yes, of course. The inflation rate today is the lowest level for three years, is lower right now than France and Germany, which has not always been the case in recent months. But 2.3% – economists had hoped the figure would come down even more than that. A lot of them suspect that there is still underlying inflationary pressures out there, and they think it makes it less likely that the Bank of England will cut interest rates in June.

So if the inflationary tide is ebbing out, one of the questions is what are we left with? Since the last election, overall consumer prices have gone up by 23%, and for food, it’s even more than that. They’ve actually gone up by 30%. So I think one big issue will be, do voters think about the latest inflation figures, or do they think about the inflation figures for the last four years?

Are spending plans deliverable?

Krishnan Guru-Murthy: And the big question is, will any of the main parties tell the truth about tax?

Neil Macdonald: An Office for Budget Responsibility graph shows taxes as a share of national income heading to their highest level since 1948. Can we do something about that? Should we do something about that? And there’s another issue that’s the flipside to this, of course – taxes pay for public services. Conservative and Labour both committed apparently to very, very tight public spending plans. I think the question they’re going to be asked a lot is, are those spending plans at all deliverable when one of them forms the next government?