TaxPersonal TaxSquaring up for the final battle

Squaring up for the final battle

With inflation, interest rates and unemployment at comfortably low levels, where can the Conservatives attack Labour's economic policies?

In 1992 during his first presidential campaign Bill Clinton’s campaign headquarters were dominated by a poster. It read ‘It’s the economy stupid’ and it was put there to remind everyone what issue the Democrats wanted to concentrate on.

It subsequently became a bit of a cliche that the economy is the dominant factor in an election campaign. But that misses the main point of the story.

The Democrats wanted to spend all their time campaigning about the economy because it was thought to be the one factor that President Bush snr was weak on.

They were right and Bill Clinton was elected. That shows that in elections, as in many other things, deciding what ground you want to fight on can be as crucial to the result of the battle as the forces you can bring to bear.

The economy -a campaign issue?
This begs the question: ‘Which of the major parties feels the most comfortable keeping the economy at the top of the agenda?’ At first sight that would seem to be Labour, but the Conservatives have some tricks up their sleeves.

The latest inflation figures show the underlying inflation rate is 2%.

That’s slightly higher than expected but still well below the Bank of England’s target rate, leaving it plenty of room to cut interest rates further.

Good news for Labour, not least because it has made one of its pledges for the next five years: ‘Mortgages as low as possible, low inflation and sound public finances’.

That is pretty cheeky since low inflation and low mortgages are the responsibility of the Bank of England – although Labour can claim the credit for giving the Bank its independence in the first place. On this issue Michael Portillo has pledged to ‘enhance the independence of the Bank of England’.

Interest rates – a Tory trump card?
However if inflation isn’t an issue that will play into the Tories’ hands, interest rates may be. True, the Bank cut interest rates by a quarter of one percent to 5.25% just 48 hours after the start of the election campaign, but that is a double-edged sword.

The reason rates are coming down is not only because inflation is low but because the Bank of England has real fears that the economic downturn in America is going to cross the Atlantic. If the Conservative party can concentrate on the idea that things may be OK now but that hard times are ahead, it may be onto a winner.

Labour is keen to talk about how well the economy is performing now but the spending increase it is committed to, if re-elected, makes it particularly sensitive to the threat that the downturn could be worse than expected. This gives the Conservatives room to attack Labour on the grounds that if the economy doesn’t perform well taxes will have to rise. Thus for the Tories tax is one of the big issues of this election campaign and it’s a theme that Messrs Hague and Portillo are likely to return to time and time again.

Given all of the above, it seems unlikely that the Conservatives are going to find a serious enough problem with the economy, at least one that is likely to become apparent during the campaign, to land a knockout blow on the Labour party.

The euro, stupid
That means that for the Conservatives, the economy is not necessarily the best ground to fight and win an election campaign on. But, then, if there is a poster on the wall at Conservative Central Office it probably reads ‘It’s the euro, stupid’. Saving the pound is an issue the Conservative party is happy with.

The Tory manifesto says ‘The next Conservative government will keep the pound’, plain and simple. The Labour party’s wordier pledge hedges its bets by saying, ‘in principle, we are in favour of joining a successful single currency. But, in practice, the five economic tests we have set out must be met before the government would recommend entry to the single currency. An assessment of the tests will be carried out early in the next parliament. If the government and parliament recommend entry, the British people will have the final say in a referendum.’

Which boils down to: Labour may have a referendum on joining the euro during the next parliament and the Conservatives won’t.

The Lib Dems have a policy very similar to Labour’s. But the manifestoes of the various parties are a poor guide to the heat that this issue generates.

Labour has room to move
Which may be why Labour has given itself room for manoeuvre. If re-elected it always has the option of saying the five tests set by Gordon Brown haven’t been met and not holding a referendum or of finding that they have all been met and calling one, when the polls look favourable.

The Conservative’s campaign is based on the assumption that the latter option is the most likely and it is launching a pre-emptive strike. Whenever you see William Hague on TV he is surrounded by ‘Save the pound’ posters.

This is ground upon which the Tories can really set themselves apart from the other parties.

The trouble for the Conservative party is that it may be spoiling for a fight but it isn’t clear that many others are.

If you look at the issues the voting public is interested in, the euro doesn’t come high up the agenda.

With just two weeks to go, the Tory party has a big job ahead. It not only has to win the argument on the single currency but move the issue far enough up the agenda for the argument to influence voting intentions.

A chance for the Tories…in the future
But although it only has three weeks to do that, it may get another chance surprisingly quickly. If Labour wins this election, the timetable for joining the euro is very tight. In fact a decision on joining the single currency would probably have to be made by this time next year, in order to join the eurozone before the next general election.

Then all these issues of tax, the economy and the single currency will doubtless rear their heads again.


Election 2001


  • Jonty Bloom is a business news reporter at the BBC.

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