May pledges to clear deficit by mid-2020s

British Prime Minister Theresa May's Conservative party manifesto also revealed tighter immigration rules and more worker protections.
British Prime Minister Theresa May's Conservative party manifesto also revealed tighter immigration rules and more worker protections.PHOTO: AGENCE-FRANCE PRESSE

Budget promise made in Conservatives' manifesto suggests party will stick with fiscal rules laid out last year

HALIFAX • British Prime Minister Theresa May has promised to wipe out the country's Budget deficit by the mid-2020s if the Conservatives win the June 8 national election, sticking to a softer fiscal programme she adopted after taking power last year.

"Sound money and responsible public finances are the essential foundations of national economic success," said a manifesto document listing the Conservatives' policy proposals yesterday.

"There is still work to do on deficit reduction, so we will continue to restore the public finances over the course of the next Parliament," it said.

A new Conservative government would continue with the fiscal rules announced by Finance Minister Philip Hammond at the end of last year "which will guide us to a balanced budget by the middle of the next decade", the document said.

Mr Hammond said in November that he would aim to bring down the deficit to 0.7 per cent of gross domestic product (GDP) by 2021 or 2022 before wiping it out as quickly as possible after that.

The deficit stood at 2.6 per cent of GDP in the last financial year which closed in March, down sharply from 10 per cent in 2010 when the Conservative Party took power, after the global financial crisis blew a massive hole in public finances.

Mr Hammond's predecessor George Osborne had been aiming to wipe out the deficit by 2020.

BIGGER COST

The big difference is that from the Labour Party you have got much more spending, much more tax.

MR PAUL JOHNSON, director of the Institute for Fiscal Studies, on the modest spending proposal by the Conservatives.

But those plans were blown off course by last year's Brexit vote, which is expected to weigh on economic growth in the coming years, hurting tax revenues.

Yesterday's policy document said there would be no increases in value-added taxes and corporation tax would be cut to 17 per cent by 2020, as previously planned.

But it did not repeat promises made by the Conservatives at the previous national election in 2015, under then-Prime Minister David Cameron, not to increase income tax or national insurance contributions.

Mr Hammond attempted to increase national insurance contributions in his first Budget statement last November but was forced into a U-turn when Conservative lawmakers protested that the planned change breached the party's 2015 election promises.

Mr Hammond said at the time that the promises tied his hands in steering public finances back to full health.

A leading budget analyst said that while there was no promise not to raise income tax and national insurance contributions, the Conservative spending proposals looked modest, especially in comparison with the plans of the left-wing opposition Labour Party.

"The big difference is that from the Labour Party you have got much more spending, much more tax," Mr Paul Johnson, director of the Institute for Fiscal Studies, told BBC television.

The manifesto - which also sounded a tough note on Brexit - revealed tighter immigration rules and more worker protections, while "making executive pay packages subject to strict annual votes by shareholders".

Mrs May will place mergers and acquisitions under more scrutiny, make sure foreign ownership of crucial infrastructure does not undermine security or "essential services", and allow bids to be stalled while the authorities probe details.

Workers will also be represented on boards, the party pledged.

Local councils will receive funding to build more homes, in a move which could significantly boost the amount of government-backed social housing for the first time in decades, with 1.5 million homes by the end of 2022.

REUTERS, BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on May 19, 2017, with the headline 'May pledges to clear deficit by mid-2020s'. Print Edition | Subscribe