From Manifestos to Mandates: The UK Election in Focus
Ethan Ilzetzki and Suryaansh Jain
Monday, July 15, 2024
Summary
The June 2024 CfM survey asked the members of its UK panel to outline the three most important economic policy challenges facing the incoming UK government. Generative AI was used to summarise and analyse their responses. Almost every panellist cites the UK’s poor economic growth, productivity and infrastructure as the most important challenge facing the incoming government. The poor state of public services; Brexit, immigration and trade-related issues; fiscal policy and public finances; and housing reform also mentioned as key challenges.
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Background
The June 2024 CfM-CEPR survey asked the members of its UK panel to identify the main economic policy challenges facing the incoming UK government.
General Election 2024
On 22nd May, Rishi Sunak announced that the UK would have a general election on July 4, 2024. With the Tory PM having an approval rating of just 27%, the Labour party seems to be in pole position to form the new UK government. However, the incoming incumbents are set to inherit significant challenges, both at home and abroad.
A key domestic issue that needs to be urgently addressed is the slow growth of the UK economy. Emmerson, Johnson and Ridpath (2024) assess that economic growth per capita in the UK has been slower than in the US, the EU27 and Germany since the 2008 financial crisis. The UK productivity growth has also been tepid since the turn of the century relative to comparable economies. It is 14th of the 20 largest OECD economies in terms of productivity growth (Caswell, 2024). The February 2020 Survey also asked the CfM-CEPR panel about the UK’s low productivity growth, with most panellists citing low demand due to the financial crisis, austerity policies and Brexit as major causes for this productivity slowdown (Ilzetzki, 2020). Both major parties have opted for different strategies to address these issues, with the Tories relying primarily on tax and National Insurance cuts to boost labour supply and stimulate the economy, while Labour has opted for alternate policies such as increasing housebuilding and infrastructure projects, setting up a national wealth fund and a new Great British Energy provider of clean energy to promote UK growth.
On the macroeconomic front, another key issue is the state of the UK’s public finances. Public debt in the UK rose to its highest as a share of the economy since 1961 last month, adding to the UK’s economic woes. The March 2024 CfM Survey also asked the members of its UK panel about the efficacy of the UK’s fiscal rules, with the majority indicating that the current set of rules are either ineffective or counterproductive in limiting the buildup of public debt (Ilzetzki and Jain, 2024). With public debt reaching unsustainable levels, the incoming government will need to find a way to stabilise debt. This could either entail implementing the public spending cuts outlined in the Spring Budget – cuts that are likely to be painful – or tax rises (Emmerson, Johnson and Zaranko, 2024). The Conservatives have remained largely silent on which departments would be affected by the planned cuts to day-to-day spending. Moreover, with a promise to increase spending on defence, the Tories have limited their options for making the implied further cuts to funding for unprotected services (IFS, 2024b). Labour, on the other hand, has proposed a modest boost to day-to-day spending on public services of almost £5 billion a year, to be slightly more than matched by a modest tax rise. However, it is unclear whether, if the growth outlook deteriorated, a Labour government would choose to cut spending even further, raise taxes by more or allow debt to rise for longer (IFS, 2024a).
Another issue at the forefront of public discourse is the UK health and social care system. Health is second only to the cost of living on YouGov’s “most important issues” tracker for Britons ahead of the vote, with 34 percent of respondents listing it. The 2023 Annual GP Patient Survey report found that only 50% of respondents found it easy to get through to their practice by phone – a lower figure than all previous years. Further, the proportion of patients who reported being seen later by their GP than they wanted has increased year on year between the 2021 and 2023 surveys (Viggers, 2024). As such, several major political parties – the Tories, Labour and the Liberal Democrats – have outlined proposals to improve the accessibility of the NHS and reform the GP booking system.
Climate policies and the green transition is another key issue surrounding the general election. With a commitment to achieve net zero by 2050, the UK needs to take more aggressive action to reduce emissions. The United Kingdom’s energy mix remains heavily reliant on fossil fuels, emphasising the need to accelerate the deployment of renewable energy sources while enhancing energy security (Juanino, 2024). The UK’s current set of carbon pricing policies – the UK CPS and the UK ETS – also overlap substantially and have been insufficient to drive the necessary changes for decarbonising the UK economy in practice (Juanino, 2024). Moreover, the UK government recognised in its 2023 Net Zero Strategy report that an annual investment of £50-60 billion will be necessary from 2030 onwards to support the country's transition to net zero emissions (Juanino, 2024). However, the Conservative party remains adamant there will be no new green levies or charges and promise any big new decisions on climate will be put to a vote in Parliament, while Labour only committed to an average of £4.7 billion a year on green investments.
Immigration also remains a contentious topic, with both parties outlining policies to reduce the number of immigrants and refugees in the UK. The Tories have outlined their plan to send some asylum seekers to Rwanda, saying there will be a “regular rhythm of flights every month, starting this July”, but courts have ruled the plan as “unlawful”. Labour too has promised to cut down net migration figures without elaborating on how it will do so (Mohamed, 2024).
Deglobalisation and onshoring are also major issues that could define the election. Recent disruptions to global value chains such as the Covid-19 pandemic, the war in Ukraine, growing ideological differences and the green transition have prompted governments and corporations to reconsider external dependencies (Keller and Marold, 2023). With costly post-Brexit border checks further complicating issues, the incoming UK government will need to decide whether trade policy needs to be reformed to ease supply chain issues or altered to encourage firms to onshore – move as much of the businesses supply chain back to within the UK.
Question: What are the main economic policy challenges facing the incoming UK government? Please outline up to three challenges that you view as the most important.
Twenty panel members responded to this question. The question was open ended and we fed the panellists’ responses into ChatGPT 4.0 and ClaudeAI 3.5 and requested a summary of the main topics. We then prompted both to refine the topics and consolidate similar topics. ChatGPT usefully summarized the frequency and rank-ordering of various topics, which we used to quantify the results. A summary of the interaction with ChatGPT can be found here, and with Claude here. (We also attempted to ask Gemini, but it refused to summarize the comments, because it claimed the question was political in nature, despite several attempts to clarify that we are merely asking to summarize the panellists’ responses.)
Based on the responses, the panel believes that the UK’s slow economic growth and productivity pose the biggest challenge to the incoming UK government. The poor state of public services, especially the NHS, is mentioned as a problem needing urgent reform and investment. Brexit, trade relations and immigration are frequently mentioned as key challenges that need to be addressed via favourable trade agreements, and effective immigration policies. Several experts also highlight the need to manage fiscal policy and public finances effectively to ensure sustainable economic policies and public confidence. Panel members have also pointed out housing reform as a key policy challenge, emphasising the need to increasing housing supply, reforming planning systems, and addressing affordability.
Economic growth, productivity and infrastructure are consistently rated as the most critical challenge for the incoming government by almost every panel member. Nicholas Oulton (LSE) summarises this: “There is now wide agreement that the UK’s main economic problem is the stagnation in living standards which has prevailed since the global financial crisis hit in 2008. The underlying cause of this is the stagnation in productivity growth over the same period.” Jagjit Chadha (NIESR) further characterises the issue of low productivity and economic growth as “deep set”, “stubborn” and “a persistent feature of British economic performance”, pointing out that only “a sustained effort to improve the quality of political decision-making and public administration” would lead to an increase in living standards. Almost every panel member stresses the need to increase public investment to stimulate the economy and boost productivity growth. ChatGPT initially viewed infrastructure as a separate concern but we prompted it to treat this as a solution to the growth and productivity problem, based on our own reading of the responses. Ricardo Reis (LSE) states that a wholistic approach would be necessary to rectify this problem, which would involve creating “a business environment – laws, regulation, taxation – that encourages improvements in productivity and economic growth.”
Several panel members have pointed towards the current state of public services, especially the NHS, as a major area of concern for the incoming government. David Cobham (Heriot Watt University) highlights the poor state of public services, both at national and regional levels, due to being “badly hit by austerity”. He summarises the issue: “The government needs to confront the longstanding deep assumption (for which macroeconomists share some responsibility) that public spending is an unproductive waste that should be minimised as far as possible, and it should link taxation directly and repeatedly to the state of public services.” Richard Portes (London Business School) points out that the NHS is currently plagued by a host of issues including “settling junior doctors disputes”, “rationalising and extending IT [services]” and “overriding and rationalising the NHS bureaucracy” and stresses the need to “engage with GPs” who “know what's wrong [with the system] and have ideas about how to fix it.”
The UK’s trade issues, stemming primarily from Brexit and heavy immigration, are also frequently cited as key challenges for the incoming government. Matthias Doepke (LSE) summarises the Brexit issue: “Leaving the EU has made the UK less competitive and less attractive as a location for business; the economy and therefore tax revenue are lower as a result. The government could consider rejoining the single market and customs union or take steps that take us as close as possible to an equivalent position.” Morten Ravn (UCL) summarises the immigration issue, stating that the UK government needs to “rethink its current immigration policy” which is “discouraging inflows of highly skilled labour.” Lucio Sarno (University of Cambridge) echoes this sentiment, pointing out that reforming immigration policy could “fill shortages in key labour market areas.”
Reforming the UK’s set of fiscal rules and bringing public finances under control are also key issues cited by the panel. David Cobham sums up the issue: “In the first 100 days some small easing of expenditure limits must be possible, and on the public finances, the government should set up a committee of experts to examine what kind of fiscal rules are appropriate (e.g. taking investment, suitably defined, out of the measures, and/or including some net worth element) for its later policies.” Andrea Ferrero (University of Oxford) further stresses the need to “make spending more efficient without choking the economy with excessively higher taxes on labour”, stating that it is necessary to “review the generosity of the welfare system.”
Several panellists have also cited the UK’s housing crisis as a major issue in need of urgent addressal. Matthias Doepke summarises the issue: “Lack of housing is a major brake on economic growth, as it hinders business investment, mobility within the UK (e.g. to locate close to good jobs), young people's economic independence, and also family formation and fertility. A major reform of the planning system, mandatory building targets, and opening up some land in the green belts should be the first priorities.” Richard Portes expresses similar sentiments, highlighting the need to “override or nullify planning restrictions, focus on expanding supply [and] stop subsidising demand.”
Reference list
Caswell, B. (2024). Macroeconomic Context. [online] Available at: https://www.niesr.ac.uk/wp-content/uploads/2024/05/NIESR-GE-Briefing-2024-Macroeconomic-Context-1.pdf?ver=v1JY0nxND2t5KJuL10Go [Accessed 21 Jun. 2024].
Emmerson, C., Johnson, P. and Ridpath, N. (2024). A decade and a half of historically poor growth has taken its toll. [online] Institute for Fiscal Studies. Available at: https://ifs.org.uk/news/decade-and-half-historically-poor-growth-has-taken-its-toll [Accessed 21 Jun. 2024].
Emmerson, C., Johnson, P. and Zaranko, B. (2024). Public finances and the 2024 general election. [online] Institute for Fiscal Studies. Available at: https://ifs.org.uk/articles/public-finances-and-2024-general-election#:~:text=Investment%20budgets%2C%20too%2C%20are%20facing [Accessed 21 Jun. 2024].
IFS (2024a). Labour Party manifesto: an initial response. [online] Institute for Fiscal Studies. Available at: https://ifs.org.uk/articles/labour-party-manifesto-initial-response [Accessed 21 Jun. 2024].
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Ilzetzki, E. (2020). Explaining the UK’s productivity slowdown: Views of leading economists. [online] CEPR. Available at: https://cepr.org/voxeu/columns/explaining-uks-productivity-slowdown-views-leading-economists.
Ilzetzki, E. and Jain, S. (2024). Evaluating the Spring Budget and the UK’s fiscal rules. [online] CEPR. Available at: https://cepr.org/voxeu/columns/evaluating-spring-budget-and-uks-fiscal-rules [Accessed 11 Jul. 2024].
Juanino, P. (2024). Climate and Green Transition Policies. [online] Available at: https://niesr.ac.uk/wp-content/uploads/2024/06/NIESR-GE-2024-Briefing-Climate-and-Green-Transition-Policies.pdf?ver=Fe8kbJwoqQzPij7OXDZf [Accessed 21 Jun. 2024].
Keller, C. and Marold, R. (2023). Deglobalisation: here’s what you need to know. [online] World Economic Forum. Available at: https://www.weforum.org/agenda/2023/01/deglobalisation-what-you-need-to-know-wef23/.
Mohamed, E. (2024). Immigration, economy, wars: Key issues at the heart of UK general election. [online] Al Jazeera. Available at: https://www.aljazeera.com/news/2024/6/21/immigration-economy-wars-key-issues-at-the-heart-of-uk-general-election [Accessed 21 Jun. 2024].
Viggers, K. (2024). UK election 2024: Healthcare promises made by major political parties. [online] www.brownejacobson.com. Available at: https://www.brownejacobson.com/insights/uk-election-2024-what-are-the-healthcare-promises-made-by-the-major-political-parties [Accessed 21 Jun. 2024].
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