The economics of an early election

The Government’s decision to hold an early General Election in June has some potentially significant economic implications.

On the upside, an increased Tory majority, which would almost certainly be the result of an election, will increase economic and policy stability and reduce the current sense of business uncertainty.

The Government’s majority is thin at present and introducing unpalatable policies over the coming years would be difficult without more Tories in Parliament.

Increased certainty should feed through into higher levels of business investment, supporting growth in the short term.

This is especially the case with respect to Brexit uncertainty, where Theresa May would have to lay out a more articulated vision to the electorate in the run up to the election.

A colossal defeat for Labour, with the ousting of Jeremy Corbyn, would also allow a credible opposition party to emerge from the ashes and end the effective one party state that the UK has become.

This can only be good for the economy. Just as competition leads to better outcomes in business, so too does competition in politics, with credible political parties competing to deliver the policies which best guarantee prosperity for the nation.

There are some economic downsides to an early general election and a bigger Tory majority. While the Government increasingly seems to be taking a more moderate (and economically sensible) stance on issues such as immigration, reflecting the realpolitik and need for pragmatism post-Brexit, this could unravel.

Hardliners within the Conservatives could give Theresa May a difficult time over any softening in stance towards Europe. And she could be pushed into taking a hard-line stance by the media during the election campaign – expect her to be repeatedly challenged on how and to what extent the Tories will reduce immigration.

The politics of Theresa May is markedly different to the metropolitan liberalism of David Cameron and George Osborne. It is more parochial and more anti-business. There is a risk that, with a bigger majority, she introduces policies which are detrimental to entrepreneurship – from higher taxation to migration restrictions.

This would be the wrong set of policies during an era in which being internationally competitive and attractive are so important.

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Scott Corfe
Director