Dear Financial Voice Reader,

Wednesday 17th May 2017 07:28 EDT
 

Who will make you better off? Conservatives, Labour, Coalition, me?

Deficits don’t win elections. People relate to what’s in their pocket, not in the nation’s pocket. And people want hope. Those two things win all democratic elections – money and hope. Simple.

The Conservative message, to be winning, has to be: we put more money in working and middle class pockets, by lower tax on them, more spending on the services they use, raised by a growing economy, paid by some taxes on the super-rich. We are credible on our promises on the economy.

On credibility - let’s talk about the deficit for a moment.

The financial crisis did not create the budget deficit. The trend was well in place before then under Labour. Sure financial crisis, such as in 1990 create deficits. But the one under the last Labour Government was deeper than ever before, and it was in place well before the financial crisis. The financial crisis just shrouded Labour’s mismanagement (ever rising deficits in a growing economy).

But surely Labour can create budget surpluses? Let’s not be too unfair. Sure, Labour can create budget surpluses – or rather they can benefit from a trend set in place by the previous Government. The bigger problem is they lose control of spending – again the data below shows it.

Well before the 2007/8 global crash, the budget was running in huge deficit. Sure, the Conservatives had a deficit in the 1980s – but that’s after inheriting an economy in shambles in 1979...from Labour.

My worry is people will say, ‘let’s get Labour’s give-aways for 5 years, then have the Conservatives clean it up.’ Labour get to be ‘good cop’ and the Conservatives ‘bad cop’.

So why are deficits bad? How do they mean less money in working class and middle class pockets?

First, Government spending needs borrowing to fund it, and that means more spending on interest payments, and ultimately less money eventually for spending on things like roads, hospitals, and sharper cuts later. Sure we won’t end up like Greece, but you get the idea.

Secondly public spending crowds out the private sector, which tends to be more efficient at running business. Every Government project, is one the private sector will not do. Fine if you believe in nationalisation. But Britain doesn’t have a good experience with nationalisation – civil servants should not run business. Small businesses should, and they create jobs by doing it. And this crowding out leads to lower growth because the state does not turn out profits the way the private sector does – it’s why we believe in capitalism and not socialism in Britain.

Thirdly, big deficits mean a weakening pound, so our imports become more expensive, cost of living increases – that hurts working classes in particular – because food and fuel prices rise. (Sound familiar since Brexit – get even more with a budget deficit).

Taxation rises eventually become inevitable. The reason Labour traditionally is not trusted with the economy is because people did not trust their taxes to stay low. The Conservatives became the trusted party of lower tax. Credibility. And the credibility issue is that under Labour – deficits balloon, without financial crisis. Credibility. And the credibility issue is that under Labour – deficits balloon, without financial crisis.

Promises are one thing, who do you trust? Who is credible. So who delivers on your hope for more money in your pocket?

Alpesh Patel


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