With 2024 upon us, the general election campaign has begun as Rishi Sunak promised. It was his ‘working assumption’ that a vote will be called in the latter part of the year. It marks the fourteenth year under a Conservative government and five different PMs since an opposition party led the government. As campaigning ramps up and the economy becomes the most salient issue for voters, a relative majority of 30% saying it is the most important issue facing the UK and 54% saying it is one of the most important issues, it has been dominating the headlines and the agenda’s of both parties. Looking at what the year ahead has in store might thus provide some insight into how the general election might pan out.
In the beginning of 2023, Sunak laid out five pledges to the British public and declared that he expected the British public to ‘hold my government and I to account on delivering those goals’. Of these five pledges, three were economic pledges: halving inflation, growing the economy and to get debt falling. With CPI inflation falling from 10.7% to 3.9%, Sunak was able to deliver on his pledge of halving inflation by the end of the year. He is also on track regarding economic growth, with the OECD forecasting UK GDP to grow by 0.5% However, debt has risen to 88.3% of GDP in November 2023 from 85.1% in December 2022, meaning this pledge is in doubt. Overall, in terms of the pledges, the economy seems to be on track and the fall in inflation is no doubt going to aid the cost of living crisis. A continuation of a fall in inflation steady enough to convince the Bank of England to drop rates would also have another effect of reducing the cost of government borrowing and gilt yields, giving Sunak a larger war chest for tax cuts in the Spring Budget. With consumer sentiment also finally turning a corner, more households expect to be better off in twelve months time than worse off for the first time since 2021, Sunak will be campaigning on the messaging that he has ‘made progress’ and ‘the country is pointing in the right direction’.
Yet, not all is rosy for the UK economy and its Labor Party has made sure to campaign on the back of the economic hardship the UK has faced. Although inflation is falling, real household disposable income per head (RHDI) will contract in 2024 and 2025 as prices rises are expected to continue to outpace increases in labor income. The overall 3.5% drop in RHDI between 2019-20 to 2024-25 will be the largest reduction in real living standards since ONS records began in the 1950s; this is the worst decline in living standards of any G7 country, with the UK the only G7 economy where RHDI hasn’t recovered to its pre-pandemic levels. The nature of RHDI means voters feel it in all aspects of their lives, from prices in the shops to mortgage repayments, and thus it is particularly damning for a Conservative party that wants to convince the electorate the economy is in the ‘right direction’.
While all this gives Labor more ammunition pre-election, it too has questions to answer if it is to break its reputation of being ‘fiscally irresponsible’ whilst living up to the promise that they will govern differently to the Conservatives. Already, the Labour Party seem to have over-promised on their policies, with revenues raised from abolishing non-dom tax status and imposing VAT on private school fees having been spent multiple times over by different shadow ministers. With February 8, the deadline for the final Labour manifesto, quickly approaching, Labor must decide how it will reconcile ruling out ‘borrowing to fund day-to-day spending’ and ensuring it will fulfill its pledges such as £28bn a year on green investment, getting NHS waiting lists down and replacing the existing childcare system.
As a result, the upcoming months will be crucial in shaping the results of the general election. A sudden economic upturn might give Sunak the war chest it needs to make the election more competitive, while Starmer needs to spend the next few months making sure its economic plan will offer both an alternative to the Conservatives whilst being fiscally responsible.
Written by Sarp Basaran
