It’s the prospect of more months of apprehension and uncertainty that now poses the greatest threat to our well-being and prosperity – as if the suspension of reality on our fiscal state is not enough. This election has proceeded on a fantastical belief that money is no object.
The UK is as good as broke. The campaigns thus far seem intent on worsening this state of affairs. Either taxes must rise or large areas of public spending are cut. There is a third way: faster economic growth. But to the extent that government can have a material influence on this, growth is barely being discussed.
Meanwhile, where – and when – will there be clarity on government spending, taxation and borrowing? Capital spending projects risk being shelved because of doubts over funding. Business spending and investment could be stopped in their tracks by an election outcome that could effectively render the country ungovernable.
The risk is now real of the UK facing an economic as well as constitutional crisis.
The SNP is triumphalist in its determination to end “austerity politics”. Its anti-austerity programme – a blanket refusal to contemplate any reduction in public sector spending – defies any understanding of the levels of debt and debt interest that have to be addressed.
Labour pledged last week that if elected it would get the government deficit and debt down in the course of the next parliament. To achieve this, there would need to be cuts in non-protected public services.
It has been compelled to do this because, to secure votes in England, it needs to show that it has changed from the deficit debacle over which it presided in 2007-2010 and that it now has a credible fiscal plan which voters can trust.
But through the middle of this the SNP has gaily set sail, with a “full fiscal responsibility” manifesto yesterday pledging, inter alia, an increase in government spending of 0.5 per cent a year, an astonishing £24 billion more for the NHS, a rise in the Minimum Wage, a restoration of cuts in disability support and a hike in the Employment Allowance.
Who would not wish any of these things? But how are they to be funded?
By scrapping the Trident nuclear deterrent, of course – a policy to which the Labour leader is firmly opposed.
With David Cameron’s Conservatives failing to achieve a visible break-out in the opinion polls, media attention is now almost totally focused on this approaching political showdown between Labour and the SNP. Not only is there widespread public scepticism over how the spending promises of any party will be financed, but there is growing doubt on how Labour and the SNP will arrive at an arrangement that allows the government to govern for any extended period of time.
Other issues are now relegated to second place. Good news there may well be: unemployment at a seven-year low, employment in Scotland at a record, an Ernst & Young forecast of 2.8 per cent growth. But all this is overshadowed by the prospect of prolonged political instability.
The government’s “good news” – the benefits palpably thinner the further north you move from the south-east – is providing little assurance for households and businesses.
Ambitious to invest? You can’t plan properly without knowing what tax levels and rates might be. Keen to borrow and expand? You can’t be sure that interest rates will not be forced up on a sterling sell-off or that household spending will hold up.
Already there are signs – witness the Scottish Chamber of Commerce report last week – of a slowdown in the pace of growth.
Exaggerated fears? Whoever forms the government after May 7 will still need overseas investors to fund UK debt. But international investors have already cut their holdings by $14 billion so far this year.
And while the FTSE100 Index, dominated by multinational companies, may have been hitting new highs, the FTSE 250 index, mainly comprised of UK smaller firms, is five per cent below its level of a year ago.
A Labour/SNP “confidence and supply” arrangement – partnership would be too strong a word – would have to withstand the wrath of English voters who would view such an outcome as profoundly undemocratic, while putting Labour’s earnest pledges on debt and deficit reduction in jeopardy.
It’s possible, of course, that another extraordinary coalition arrangement could be forged – a return of the Tory-Lib Dem coalition assuming the Lib Dems succeed in holding a credible number of seats, or perhaps even a deal between the SNP and pro-EU Tories opposed to a referendum on UK membership.
But another early general election looks more likely. And the resulting extended uncertainty would be a killer for business investment and growth.
The BBC’s economics guru likens the prospect to that of a “big chill hitting Britain, that temporarily undermines economic activity”.