Politics and Economics

Scotland will get more tax raising powers – prepare for a low tax, low spend UK.

Prepare for low tax, low spend economics in all 4 nations of the UK.

Scotland voted decisively to stay part of the UK and has been promised more powers to raise its own tax as well as to decide how it is spent. Consequently England has also been promised similar powers over its own fiscal policy. The case for English MPs with power to set English income tax, corporation tax and spend is now overwhelmingly compelling.

This would make the election of an Old Labour style tax and spend Government in England all but impossible.  In 2010 Labour won 41 Scottish seats to the Tories 1.  Wales returned 26 Labour MPs to the Tories 8.  Also the Scottish and Welsh Labour MPs tend to be more socialist Old Labour style politicians than we find in England.  Tony Blair would still have achieved overall majorities in the elections of 1997, 2001 and (possibly) 2005 even if all Scottish and Welsh votes had been declared invalid, but his politics were hardly the Socialist Nirvana dreamed of by the Old Labour and the SNP.  Tony Blair’s top rate of income tax was lower than that of the current Tory led coalition.

In England the Tories would have had an absolute majority of 63 in the 2010 General Election rather than having to share power with the Liberal Democrats.

This would suggest a long series of Conservative or Centrist English Governments committed to lower public spending, lower top rates of income tax and downward pressure on business rates.

Where would that leave the Scottish, Welsh and Northern Irish Governments with England making up 85% of the GDP of the four nations?

If taxes rise in the Socialist Scottish and Welsh territories in order to pay for higher benefits how will they stop their high earning, affluent citizens and businesses moving across the border to seek a more favourable tax regime?  How will the other nations stop English benefit seekers moving to their territory to maximise their income from the State?  There are few geographical, language and cultural barriers to abate a massive movement of people and capital.  With such a large economy on their doorstep the other nations ability to manage their own tax and spend would be much diminished unless they were prepared to put up a Berlin style wall to stop the affluent leaving and the poor arriving.  There would be a race to the bottom in terms of taxation to attract affluent capable citizens and business investment.

It would reproduce the scenario of the mass emigration we saw from the Republic of Ireland, a flight that did not abate until the Irish abandoned the worst of their country’s ultra-nationalist business cronyism and implemented some of the most attractive low-tax packages in the western world.

Currently the other nations’ MPs are able to influence the economic policy of the UK, which they would not be able to do if they were managed solely in their devolved parliaments.

So a vote for more independence would most likely result in a series of more right wing, low tax, low spend governments in England, which would then severely limit the other nation’s ability to mange their own tax and spend as they would wish.  They would have to fall in line to manage their Government finances and maintain their competitiveness.

Under a centralised UK Government the other nations had an opportunity to influence English economic policy, which is 85% of the UK GDP. Under a fully devolved Government they will not. Counter-intuitively Scotland and the other home nations would have more independence as part of a centralised UK Government than they would as devolved nations within the UK.

Politics and Economics

What do 2014 local elections predict about the General Election Result in 2015?

From previous elections it seems that the opposition party needs at least a 15% lead in the opinion polls one-year before the election before they stand a chance of forming the next Government.  The Tories enjoyed such a lead in 2009 and were still not able to form a majority Government a year later.  Previous 8% poll leads by the Tories in opposition still saw Tony Blair returned to Government with a majority the following year.

The current 2% lead enjoyed by Labour is, by historical standards, not enough.

There is a simple reason for this.  Being in Government is much harder than being in opposition.  Running the Government often means making tough, unpopular decisions.  This is particularly true of the current coalition Government, which has had to implement unpopular austerity measures in order to get the budget deficit under control.  At the beginning of the current Government some Labour politicians gloated that they would have to make such unpopular decisions that they would subsequently be out-of-office for a generation.  Opposition parties are able to merely talk about what they would do or claim that they wouldn’t have implemented unpopular policies in the first place.  The Labour opposition has been voting against the all coalition’s Government cuts for example.

The electorate use opinion polls, bye-elections and local elections to register a protest to the Government and to keep them on their toes.  They can do this with the safe knowledge that there will be no change in the national Government.  However the British electorate is very sophisticated and understands that being in Government is difficult.  They are more forgiving in ballots that will choose the next Government and Prime Minister.  Also protest votes that go to the third party (historically the Lib Dems) tend to be soft when it comes to a real election.  This is because the British “first-past-the-post” electoral system makes the electorate more reluctant to “waste” their vote on a party that has no chance of winning a particular seat or forming a Government.  They vote tactically to keep out the party they like the least.

Taking into account these historical trends Stephen Fisher at the Department of Sociology at the University of Oxford has come up with an election forecast based on current opinion polls:

Approximate probabilities of key outcomes

(Con largest party) = 60%

(Lab largest party) = 40%

(Con majority) = 34%

(Lab majority) = 18%

(Hung parliament) = 48%

(Hung parliament with Con largest party) = 26%

(Hung parliament with Lab largest party) = 22%

To add to Labour’s woes no opposition party has been elected to Government at a General Election unless they have a majority of seats in local Government.  The Tories currently hold the majority of local Government seats.  And Ed Miliband is even less popular than his own party.  This is important because in a general election the electorate also believe they are voting for the next Prime Minister. Labour also has low poll rating for their economic competence, which has historically acted disproportionately against parties when it comes to an election.  Additionally the fact that the UK economy is likely to recover significantly in the next year will benefit the current Government at the expense of Labour.

But what is different this time is the possibility of UKIP adding an unknown dimension compared to historical trends.

The Conservatives may worry that some of their votes will go to UKIP in 2015 causing a split in the right and centre-right.  This could give Ed Miliband a further advantage on top of his in-built 30 seat electoral advantage caused by the unequal constituency boundaries.  But the local election results yesterday suggest that UKIP can also take votes away from Labour, even in the north of England.  The Tories do seem to disproportionately lose votes to UKIP compared to Labour however.

In previous parliaments some protest votes went to the Lib Dems.  As they are now in Government they have clearly suffered in the polls so they too may expect their core support to trickle back in line with historical values as the election approaches.

But as the official opposition Labour have not been collecting the protest votes that previously went to the opposition and the Lib Dems.  They have instead have gone to UKIP. Labour should worry that they cannot even be trusted with a protest vote.

As the official protest party we should see UKIP’s poll rating decline towards the next election to favour the Tories.  Labour’s poll rating would be expected to decline as the election approaches in favour of the incumbent Government.  This may be partly negated by winning back some of the UKIP protest votes, so it is likely their poll rating will decline only slightly.

All this probably means that David Cameron will be back in Downing Street next year as leader of a coalition with the Lib Dems, as predicted by Stephen Fisher.