Barely six weeks to go to the election – and what’s the main issue? Before long condescending commentators will be telling us: “It’s the economy, stupid”.
But that pre-supposes that government policy makes that much of a difference.
Labour says it will reduce the deficit more slowly and thus secure higher economic growth.
The SNP says it will “oppose austerity” and make £180 billion available for spending.
The Conservatives refer constantly to their “long term economic plan” – though few have a clear idea what it is. Other parties, it says, will put economic recovery at risk.
But how much of a difference would these conflicting policies really make?
The Conservatives claim they have secured recovery. UK output is now some 3.5 per cent higher than it was before the financial crisis broke in 2008. And it has recently been growing faster than other advanced economies.
But it can hardly claim this was due to a unique and particular set of policies. For the UK has been far from alone in experiencing an economic pick-up. Indeed, the UK came rather late to this party.
As economist Roger Bootle, head of Capital Economics, points out, just about all developed countries have achieved some sort of recovery.
In America, output is almost 10 per cent above its 2008 level. In Canada output is 12 per cent higher. In Australia it is 17 per cent up. In Sweden it is seven per cent higher. In Switzerland the uplift has been nine per cent, and in Germany four per cent.
The point here is that, with the exception of the Eurozone, a region gushing blood from the self-inflicted wounds of a one-size-fits-all currency straitjacket, the recovery has been a global phenomenon.
And the fact that recovery has been enjoyed by so many other countries belies the assertion that the UK upturn is due to the economic prescriptions of the coalition government.
The key determinants of economic activity and performance – interest rates, monetary policy, even the level of corporate taxes and now critically the price of oil – are strongly influenced by external factors.
And the requirement to pursue debt and deficit reduction is not an obligation bestowed by fearful voters, anxious to avoid a return to the crisis mood of 2009 and early 2010.
The coalition came into being because of the overriding need to address spiralling debt and the need to bring public finances under control if overseas confidence was to be sustained and buyers willing to fund UK government debt.
Without this, sterling would have been at risk. And that in turn may well have required interest rates to be higher than they currently are.
This doesn’t mean to say that there is no room for argument on the amount by which debt and deficit should be reduced, or the speed at which such reduction takes place.
But such debate is unlikely to prove conclusive. We do not know with any certainty what the out-turn would be were the government to relax its debt and deficit reduction targets. Confidence could well have been badly affected.
Chancellor George Osborne set himself impressive looking targets for deficit reduction back in 2010. Borrowing, he forecast, would be slashed to just £37 billion in the current financial year. This, he argued, had to be met if confidence was to be sustained in the government’s economic strategy.
In fact, it is more likely to be £90 billion. He took his foot off the “austerity” pedal in 2012. And what happened? The sky did not fall in. Recovery continued to gather pace.
It would be easy now to assert that we can ease up on the deficit reduction plan and still enjoy economic growth. Indeed, that growth may well be higher than it would otherwise have been.
But that would be to overlook two pressures on whoever wins the election in May.
The first is the rising cost of annual debt interest payments. This financial year government spending is being squeezed by having to meet £48 billion in gross debt interest. By 2018-19 this figure will have risen to £63.4 billion. And the slower we proceed on debt and deficit reduction the higher and more prolonged this burden will become.
And the second is the sterling exchange rate. Uncertainty over the election outcome and the prospect of a gridlocked parliament could well put the pound under pressure and force interest rates higher sooner than would otherwise have been the case.
For these reasons, assertions about the efficacy of government policy on economic performance need to be taken with a large pinch of salt.
What we do know is that supply side reforms – changes to the benefits system for example, and lower rates of business taxes – can work to increase investment and labour hiring. We are not totally powerless when it comes to economic policy. But claims that either side has a monopoly of remedies to enhance overall performance require caution.