Sunday Post: A hung parliament will only worsen the economic crisis

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2 May 2010

Written by Dr Madsen Pirie

Some people hope that no party will have an overall majority after Thursday's General Election. Those who want to change our voting system think that a 'hung' parliament will make it more likely to happen. Some commentators think that a hung parliament will be more interesting because it will be less predictable, and they look forward to the excitement that uncertainty will bring.

More widespread is a general feeling that the existing parties have not handled things very well, and maybe they should work together instead of attacking each other all the time.

The expenses scandal has tainted all parties, and left the country with less respect for Members of Parliament than anyone can remember.

Some people are tempted by the idea of a coalition government simply because it would mean things being done differently, making an abrupt change from the existing practices that have been so discredited.

A hung parliament is a distinct possibility. The televised debates have given us a three-way race for the first time in decades, and no-one knows how it might turn out. If either the Conservatives of Labour won most seats, but not enough for a majority, they would need support from outside to form a government.

Great Depression

The thought causes fear and uncertainty among those who look at Britain's economic prospects. They see the county facing its most serious economic crisis since the Great Depression of the 1930s, and shudder at the thought that we might have only a weak and indecisive government at the helm, trying to steer us through the storms.

The figures are certainly mind-bogglingly large. The yearly deficit, estimated this year at £170bn is merely the amount our indebtedness will increase.

That debt is officially put at £850bn, but everyone knows that this is a gross under-estimate that excludes those huge public sector pension liabilities, public commitments to bodies such as Network Rail, the private-public partnership commitments, and anything else that can be conveniently left off the books. The real figure is well over £1,000bn.

Economic analysts know that only tough decisive action can save us from following Greece down the plug-hole that country's economy is rapidly approaching.

But how, they ask, can you get tough, decisive action from a weak government patched together from parties who disagree about fundamentals? Precisely. You can't.

Imagine a new government laying out a programme to cut spending, only to find its coalition partner insisting that the real priority is changing the voting system to guarantee it more seats in future parliaments.

Imagine one party trying to get the economy moving with tax cuts calculated to get businesses investing, only to have one of its partners demanding tax increases to punish bankers and have business paying what they call "a fairer share" of the total.

These are real differences that would emerge in a hung parliament.

The Liberal-Democrats call for capital gains tax to be increased from 18 percent to 50 percent, to bring it into line with top rate income tax, whereas the Conservatives want to encourage more start-up businesses to be attracted by low tax rates on capital gains.

The Conservatives similarly want to cut back the National Insurance increases that are in the pipeline, but the other parties want that money to form part of government spending instead.

In a hung parliament, it would be difficult to get budget agreement between Conservatives backing cost-effective energy from new generation nuclear plants, and green-tinged parties committed to much more expensive generation from wind power, bio-fuels, and costly exotic alternatives.

Conservatives want to restore the tax dividend credit on pensions, whose abolition did so much to wreck the industry, whereas Liberal-Democrats want to end higher rate tax relief on pension contributions.

How could a budget ever be agreed between such opposing views?

These are not minor differences of detail; they are fundamental disagreements about how to seek economic recovery.

The businessmen and economists who sign letters to newspapers show how deep those disagreements go.

The analysts who fear a hung parliament know the importance of having a coherent programme to tackle the crisis Britain faces, and they also know that if there is no majority, the programme will be decided by horse-trading between parties, and end up as a patchwork quilt of proposals sewn together.

In place of a carefully thought-out and planned approach, we could end up with the bits and pieces of each partner's programme, none of which make sense unless they form part of an overall strategy.

Deeply in Debt

Two things are clear — Britain has been spending too much and is too deeply in debt.

It has to do what any business must do when it faces that situation. It is what any sensible household does. It cuts spending, starting with the wastage and the luxuries. It tightens its belt and starts to live within its means. It looks for ways to boost its income even as it cuts its expenditure. It is no different for a country, just on a bigger scale.

Britain has to cut the cost of government. Some of this will involve cutting out obvious fripperies, but some of it will be painful and will need resolve. That is where firm government comes in.

Britain also has to boost growth. That means clearing the space for businesses to invest and expand, and paying more attention to immediate opportunities for business than to long-term redistribution.

We have to create the wealth first, then worry about how to spend it fairly. This also calls for a government strong enough to resist the clamour of interest groups, all fighting for more spending in their corner, and none looking at the big picture of the national interest.

Hung parliaments do not produce decisive governments. They produce half-hearted deals and compromises that fall short.

Britain's problems are as big as any ever faced by this nation in peacetime. If ever we needed clear government with vision and purpose, it is now.

Let us hope that at the finish line, Thursday will give us that, instead of the muddle, drift and uncertainty of a hung parliament.