In the midst of geopolitical changes and alterations in domestic scenarios in all countries, the United Kingdom is rushing to implement measures that will finally reactivate its own economy. Prime Minister Keir Starmer, who was victorious in the general election in July this year, has toughened both his speech and actions within Parliament to stimulate private sector participation in the economic sphere. As is well known, since the 2008 financial crisis, the country has had to –
Firstly, Prime Minister Keir Starmer’s decisions for economic reactivation show once again that the political spectrum is not the same as the economic model. The Labor government has insisted that many of the promises made by the Conservative Party (“Tories”) would have to be suspended by increasing tax revenues. The national debt has grown rapidly, reaching 100% of the country’s Gross Domestic Product in September. Therefore, the Head of Government, as well as the Chancellor of the Exchequer, Rachel Reeves, have proposed a fiscal policy that reduces public spending in order to control inflation. Although the Ministries of Education, Defense and Health have expressed their concern about such a proposal, it is likely that public spending levels will be reduced while another way is found to finance said services.
For this reason, Chancellor Rachel Reeves, in line with Prime Minister Keir Starmer’s economic plan, has proposed increasing taxes on some industries to avoid having to implement an austerity policy that hurts the working class. So far, capital gains contributions are expected to increase, as well as employer contributions for employees’ social security. Although the Manifesto published by the Labor Party states that the latter would not be implemented, inflationary conditions demand it. These are highly likely to lead to stricter fiscal measures in the country, discouraging the arrival of new foreign investments, an effect contrary to what the Government wants for economic recovery.
Meanwhile, the Treasury is looking at alternatives to fund key ministries with £40bn. This before the presentation of the budget package on October 30 since, if that date were reached, cuts of up to 20% would be imminent. It is important to mention that, if such resources are not found, the country would be susceptible to facing risks in terms of security, health or the rule of law. Situations that, at the same time, would increase uncertainty in the investment scenario. Hence, the Labor Government sees the urgency of raising this amount of money and, in this way, fostering an environment of confidence for investors.
However, like all countries in crisis, the United Kingdom faces setbacks in its rescue project. This is because, having an economy whose debt has been exacerbated by international conditions, the country is forced to take stricter measures regarding its domestic scenario. Therefore, the government’s plan to relax bureaucratic processes, as well as fiscal policy, in order to motivate the participation of private initiative, is not viable. This dilemma increases when it is taken into account that the Labor Party does not seek to transfer the tax increase to the working class. Since after more than 10 years of Tory government, Labor seeks not to fall into the ungovernability that was recently seen from Boris Johnson, as well as not to aggravate living conditions.
Finally, it is evident that Prime Minister Keir Starmer walks a very thin line between attracting large corporations and avoiding austere policies that increase the cost of living of citizens. Although it is a plan that is likely to provide effective results, in the short term some economic agent will have to assume the costs: the government, the private initiative or the workers. If it were the latter, the Labor Party would lose significant approval; As for companies, if they face long bureaucratic processes and high taxes, deterrence to the sector would be imminent; and, finally, if the State increased its public spending, inflation, as well as the cost of living, would be a cycle that would be repeated for another period. Saving the UK economy is the biggest challenge for the current government.
