The economy or, more specifically, the recovery from the financial crisis is set to dominate the coming general election, especially in light of the UK's massive budget deficit – forecast by the Treasury to hit £178bn this year. This in spite of the fact that the country actually limped out of recession in the final quarter of 2009.
Labour's line is that a Conservative government would 'strangle the recovery at birth', referring to Cameron's pledge to slash spending as soon as the Conservatives come into office. Labour is not planning to start cutting the deficit seriously until 2011-12.However, the Conservatives have now softened their position, saying that there would be no 'swingeing cuts' in the first year of an incoming Conservative government and instead proposing only limited cuts this year. This follows advice from economists, who broadly agree that public spending should not be cut while an economy is still in recession.
Although this move has blunted Labour's criticism of their policy, the shift in position on 'in-year' cuts has left their messaging on the economy a little confused, and some are calling for the party to set out clearly their timetable for debt reduction.
Further on the economy, ministers are worried that the withdrawal of the government's fiscal stimulus programme will mean that initial figures for the first quarter of this year, due out on 23 April (two weeks before the expected election date), may show that the economy has slipped back into negative growth. A 'double dip' of this nature, which many business managers predict the UK is heading for according to figures from PwC, would be a serious if not fatal blow to the government, especially so close to polling day, and may be a further nail in the coffin for its election chances.And what of the third party? With recent figures from both Ipsos MORI and YouGov showing that a hung Parliament is looking increasingly likely, the Liberal Democrats and their views on key issues may matter now more than ever before. Liberal Democrat shadow chancellor Vince Cable, one of the few people to come out of the financial crisis with his reputation intact, has warned against precipitate action and has set out five economic tests to determine when and how quickly the big budget correction should be attempted.
The truth though is that significant cuts are on the horizon whichever party wins the election. It may just be a matter of which party makes it sound the most palatable.
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