The shock result that the Conservative Party has managed to land a majority win in the 2015 UK general election means that all of us have got to re-align our thought processes in terms of what the next five years are going to look like. The eventuality that everyone, including ourselves, wrongly predicted ahead of the election – namely that there would either be a minority government propped up by vote-by-vote support or that we’d get another coalition government – has just not come to pass, so what does the result mean for the UK now that the polls are in?
1. The European referendum countdown is on
With a majority government, David Cameron is free to call the European Union in/out referendum that he’s promised in the next couple of years. From our point of view, what this means is a couple of years of difficult decisions for international businesses that had been looking at the UK as a potential base for operations, but which might refrain from making the move until after the referendum, which could be bad for the economy.
If that kind of instability isn’t enough, there’s also the fact that a referendum will consume the next two years of politics to such an extent that it will make the Scottish independence referendum look like a village fete committee ballot. Instead of the NHS, economy, welfare, the environment or defense being the main focus of political action in the UK it’ll all be about immigration, which is far from the UK’s biggest issue.
Whether or not it gives Cameron any leverage to negotiate with Europe is hard to see right now with a very stern line on the big issues that he’s looking to flex from his European counterparts. As a result, it kind of feels like we’re going to blow a couple of years on Europe, potentially with very little gain or change in the long run.
2. Tight economic targets
If you thought the belt-tightening was severe in the last government, it’s about to get even more vigorous in the re-elected Conservative government to come. Their aim is to have a budget surplus by the end of the next term, which is a very clear sign that austerity measures will not just continue, but increase as George Osbourne puts in a big final push to balance the books.
The budget deficit has reduced significantly over the last five years from £101bn in 2009/10 down to £69bn in 2013/14, but that means that David Cameron will need his chancellor of the exchequer to go much further in this government. While everyone’s keen for the budget deficit to be removed, so that we can start to make some serious inroads into paying off our £1.25 trillion national debt, the question is how quickly it should be done to promote economic growth and personal security for the people of the UK.
3. More welfare reform and cuts
While David Cameron had been cagey to say the least in terms of his plans to cut, or as he puts it “reform”, the UK’s welfare system, the reality is that there’s more on its way. With a majority government, the Conservative Party can usher in the full compliment of their changes without too much in the way of a contest, so what’s likely to get the chop?
He’s proposed £12bn of cuts without giving too much detail away, apart from reassuring voters ahead of the election that it won’t come from child benefit and tax credits, but there were many commentators that struggled to rectify this with the extent of the cuts needed. On the Conservative Party website, it talks about capping benefits, stopping them rising faster than wages and introducing Universal Credit, but again it’s hard to see that adding up to the £12bn proposed.
If everything the government are saying is true then it’s looking likely that the target is going to be met by freezing working age benefits and hoping it results in many more unemployed people getting a job in the next election, which is a bit of a gamble in itself. Although in all fairness unemployment did reduce significantly in the last election, so there may be some vestiges of method to the madness in their plans.
4. Additional cuts expected
It’s not just the welfare system that will be getting scythed with government spending cuts, but with pledges to maintain public health spending it looks like it will be other department like local government, police, education and transport that will be bearing the brunt of the cost savings. The IFS has indicated that the government will need in the region of £50bn annually in spending cuts for the country to hit its budget surplus targets, so these other departments are going to be high up on the hit list when the budget is carved up each year.
5. NHS spending protected, but maybe not enough
It’s a contentious issue, but the reality is that the re-elected government has given very clear messages that intends to retain NHS spending, so it’s unlikely to see it facing any budget cuts. However, many advisers, including the King’s Fund, have indicated that spending in the NHS will need to rise in the coming years to the tune of £8bn per year, which currently hasn’t been committed to by the government, potentially leaving it pinched despite not being cut.
The other big issue for the NHS is around privitisation with many worried that now that the Conservative Party has a majority government, it will be free to usher in more private elements to the British health service. It’s definitely a case of watch this space, but we’ll be very surprised if privitisation of the NHS goes anywhere but forward over the next five years.
6. Tax frost bite, apparently
David Cameron has come out swinging in the past couple of months when it comes to protecting the current state of play for taxation, but the IFS has challenged this by indicating the need for some level of tax rise for the government to reduce the deficit over the coming years. Essentially, it needs more revenues coming in, which equates to tax increases, and less money going out, which equates to spending cuts, and with the IFS reminding us that the first year after each of the last five UK general elections has seen the announcement of net tax rises it seems clear that the Conservative Party will probably tackle both.
We already know that they will be increasing the threshold at which the 40p rate of tax becomes payable to £50,000 by 2020, with incremental upwards shifts over the coming years, as well as tax free income allowances rising from £10,600 in 2015-16 to £10,800 in 2016-17 and again to £11,000 in 2017-18, so there are some positives to look forward to. The bad news is that with the IFS’s warnings there could be an element of robbing Peter to pay Paul (and a couple of his drinking buddies) in the next fiver years of taxation.
7. Defense cuts and trident boosts
The Conservatives will more than likely be looking for spending cuts when it comes to defense, but they have also indicated commitment to a full replacement of the Trident submarine nuclear deterrent system.
8. What environment?
Ah. OK… so, it wasn’t a big one of DC’s pre-election topics, which means there’s not too much emphasis on the environment. However, that doesn’t mean there aren’t any plans and with increased spending in the last government on the environment, it would indicate that there may well be more in the next as they work towards stringent carbon dioxide emission reduction targets. On the downside, according to the Committee on Climate Change the UK will cut emissions by only 21-23% from 2013 to 2025, compared with the government’s own targets of 31%, so while there’s an element of spending it doesn’t look like it’s going to be enough to get the job done.
9. Transport myopia
Again, it wasn’t much of a hot topic, and there will probably be spending cuts to come in the next government, but the Conservative Party has pledged to investment significantly in roads and rail, including 850 miles of electric railways along with the start of the High Speed 2 rail lines and continued development of the proposed HS3 Leeds to Manchester connection. For transport workers, they’ve also announced plans to reform strike laws, with some emphasis on the transport network, so it could end up being a contentious government for Union battle grounds.
10. Back to the drawing board for the other parties
It wasn’t exactly a landslide, but the results of the 2015 general election have definitely come as a surprise to everyone, including the leaders of the other parties. Ed Miliband, Nick Clegg and Nigel Farage have all resigned, so Labour, Lib Dem and UKIP will face a leadership election in the coming months to get things back on track (although Farage has apparently indicated that he may run for the job again, which prompted one journalist to ask whether or not it was more of a summer holiday he was planning than a political retirement).
Even the relative winners have sort of ended up losing with Scotland being swept over by a tide of yellow constituencies under the SNP banner, but stuck with a Conservative Government in the balance, so while they’ll have a little more sway, it will be more about fighting the powerful currents than steering the ship. Its a critical one for David Cameron to get right as he faces tough lines on both sides of the border, but he’s already come out talking about devolution and the importance of unity, so he’s clearly trying to defuse things right from the outset. The key point is that with much more support behind Nicola Sturgeon, the SNP may look to push for another referendum on Scottish independence, which could be another major political distraction in the next government.