I’m starting with the economy because, rightly or wrongly, for many it will be the defining issue of the campaign. Did you notice the hedge in that last sentence? I’ve argued against the economic alarmism of the times before, but it bears particular emphasis today. For the most part, the economy will be what it is. The capacity of the government of the day to affect economic performance is, yes, measurable, but by and large the economy will continue to perform in a manner dictated by forces beyond human control. For most of us, things are going to feel pretty bad for the first half of this decade regardless of who occupies Downing Street.

Nevertheless, we have to play the game, and the first point that needs to be made is that past performance is not necessarily an indicator of future performance. The Tories managed the economy very successfully – until they failed. Labour managed the economy quite successfully, too – until they failed too. The Lib Dems were widely seen to be failures in waiting, and are now reaping the benefits of unexpected success. So before we delve too deeply into this, it’s worth taking a moment to let go of existing sentiment – even if you, like me, are feeling the effects right now – and engage directly with what’s ahead.

The headline fiscal policies of the three main parties have largely converged, to the extent where heated arguments about whether and when to cut are more of a distracting sideshow than a real issue. In a way, this is a shame; it was easier to point our straightforward right and wrong when there was an appreciable difference. The concensus that has emerged, happily, is the right one: the deficit needs to be cut but not yet. Public sector spending needs to be counter-cyclical, and in these lean times a robust public sector is a necessity. The real debate will come with the good times; look, then, for the party that appears to be happiest to cut. In the meanwhile, the meat of choice is in the details.

Banking
Despite the often incendiary rhetoric coming from the three main parties, only one – the Liberal Democrats – has pledged root-and-branch reform of the financial services sector. The Lib Dems’ Treasury spokesman, Vince Cable, has called for the big banks to be broken up, and for those in state ownership to be forced to lend more to credit-hungry companies. This is probably the right thing to do, although doing so in a manner that avoids the impression of declaring war on finance is important. The straightforward truth is that London’s economy needs banks, and Britain’s economy needs London; and while clear failings existed in the regulatory status quo ante it will be important to resist the temptation to throw the baby out with the bathwater. Banking can be safe, profitable and positive – financial services have been at the heart of human civilisation since Darius – they just need to be run and overseen properly.

The Tory’s proposals are in many respects bolder than Labour’s; they want to abolish the FSA, shift supervision of banks and other financial institutions to what they see as the safer hands at the Bank of England, and create a consumer-protection agency. Labour’s rhetoric is spicy but their proposals are flaccid and statist. The Government would assume greater control, grant itself greater powers of regulation and oversight, and institute a broad array of mostly ineffective bodies to administer each other onanastically.

The Economist, in their pre-election feature, said that:

the differences come down broadly to this. Labour offers more of the same; the Conservatives would rearrange the deckchairs; the Lib Dems would shake up the system but haven’t really said how. It’s a choice, if not a great one.

I think that’s pretty much on the nose. In almost all respects, Labour are the clear loser here.

Manufacturing and business
Again, the opposition parties have a clear advantage in both style and substance. Labour’s proposals for the post-election recovery have been most heavily tax-led; the increase in National Insurance is unquestionably a mistake, compounding controversial proposals to extend its tax reach over foreign subsidiaries controlled by British-domiciled companies. Talk of capital flight (when businesses, put off by a hostile tax regime, move overseas) are overblown, although some companies have already moved away to friendlier climes. But Labour’s more positive, business-friendly ideas are also muddled. They rely over-heavily on tax-breaks and other subsidies, which distort the tax code and create complicated and unclear incentives. This is a threat that the Tories and Lib Dems recognise; although the Conservatives also have their fair share of tax breaks, they are proposing to directly cut corporation tax and have pledged to look at simplifying the tax code and associated regulations. The Lib Dems have made a point of targetting “complex reliefs”.

The Tories would be slightly kinder to small businesses than their competition. From the manifesto:

As well as stopping Labour’s jobs tax, for the first two years of a Conservative government any new business will pay no Employers National Insurance on the first ten employees it hires during its first year. To support small businesses further, we will:

• make small business rate relief automatic; and,

• aim to deliver 25 per cent of governmentresearch and procurement contracts through SME s by cutting the administrative costs of bidding.

We will support would-be entrepreneurs through a new programme – Work for Yourself – which will give unemployed people direct access to business mentors and substantial loans.

All of this is tinkering with the engine, however. The main inhibitor of business performance is the deficit and the government’s domination of the credit markets. Until that’s resolved none of the parties will be able to do much to attract business, although they can still do plenty to repel it. Advantage Tories, but don’t base your vote on it unless you’re a small-business owner.

Employment and Inequality
Britain is more unequal than it has ever been.

The blue line in the chart above is the Gini Coefficient, the standard unit used to measure inequality. The higher the line is, the more unequal Britain gets. Two trends stand out; firstly, over the thirteen years of New Labour, inequality has slightly risen despite the huge amount of time and effort put into reducing it. And secondly, the rise under Thatcher was unnervingly sharp.

I mention this not in spite of my earlier injunction to ignore prior performance, but because it’s important to understand where inequality comes from and what can be effectively done to combat it. Labour’s anti-rich policies have been Sisyphian; high-earners liberated by Thatcher’s market reforms have raced ahead, far outstripping the government’s capacity to hold them back. This can be a good thing, if properly managed; wealth is not something to be feared, and in a truly equal society the promise of weath can in erode inequality by promoting inter-generational social movement. But the flip side of the coin is that Labour’s anti-poverty measures have been equally ineffective, and that causes a real problem. Real poverty, especially amongst pensioners and children, has barely fallen since 1997 despite the best of intentions.

So if tackling inequality was so hard in the boom times, what hope is there during the lean? The two main weapons to use against inequality are employment and education – education will be the subject of a later post, but employment is very much of the now. Unemployment has risen on Labour’s watch but not my much – it’s still well below the OECD and EU averages, and Labour have promised to move further and more decisively to squeeze employment. They’ve promised credits to ensure that working is always more lucrative than benefits; advanced apprenticeships; a Future Jobs Fund for young people and a crackdown on benefit fraud.

All well and good. The Tories take a far less liberal line on this, with populist policies bound to go down well with the middle class but unlikely to do much to tackle the employment figures. Under the Tories, long-term benefit claimants who fail to find work will be required to ‘work for the dole’ on community work programmes. Anyone on Jobseeker’s Allowance who refuses to join the Work Programme will lose the right to claim out-of-work benefits until they do. Those who refuse to accept reasonable job offers could forfeit their benefits for up to three years. While there are some positive reinforcements on offer, on the whole the Tory employment package is devoted more to sticks than carrots.

When addressing broader questions of inequality, the three parties have a broader suite of offerings. All three parties will scrap compulsory retirement ages and raise state pension ages, although the Tories will do so fastest; these are clearly the right thing to do, however much it may dismay us on a personal level. The Lib Dems will raise the tax-free earning threshhold to £10,000, which will be of benefit to most; paid for by a levy on expensive houses, this is a purely redistributive measure and is the central strut of what is probably the boldest and most innovative on inequality in this election. All parties would broaden flexible working options; the Lib Dems would introduce name-blind job application forms to reduce sex and race discrimination in employment, initially companies with more than 100 employees. Labour plan to extend elderly care and a publicly-funded national Care Service would be created, although probably not under the next government.

The Tories have a history of not taking inequality seriously and show no signs of reversing that trend here. The main theme of their manifesto is self-determination – the “Big Society” soundbite is really a fetching way of telling people that it’s time to fend for themselves. While it will, again, resonate with middle Britain it’s a proposal that will not bear fruit in the long term. Inequality cannot be combated passively, and while many think that inequality is not a problem that affects them, the lack of economic access and educational opportunity for a significant subset of the population is a huge economic problem that could undermine recovery or prompt a future collapse. If central government has any function at all then it is to avert exactly this kind of indicator.

Labour’s proposals are worthy, but will be expensive. Their costings remain opaque and some policies (“over the next Parliament more than 8,000 new therapists will ensure access to occupational psychological therapy for all who need it”) are just a bit odd, leaving one to question whether they’re strictly speaking worth spending money on at all during a time of recession. Labour’s guarantee to ensure that working is more lucrative than the dole is excellent, although the proof of the pudding will be in the eating – will an extra £40 a week really be enough to get those who currently resist working into jobs? The work-shy are, after all, work-shy.

And the Lib Dems? Their proposals are really the most robust. Theirs the only suite to be fully costed – thanks to the mansion tax and the proposal to scrap Trident (of which more in the post on defence) they have money to throw at their proposals without having to increase the tax burden or cut other, equally essential services. The ironic thing about the Lib Dem position is that, despite being generally not regarded as a credible prospect for power, their proposals are far more plausible than those on offer elsewhere. On this issue they have a clear policy advantage.

Conclusion
There are areas in which the next government can make a big difference. At present, the economy isn’t really one of them – or at least, not directly. The long-term health of the British economy rests on other indicators – migration, education – and the big economic changes that could make a difference, such as radically simplifying the tax code, aren’t being discussed. On the basis that inequality is the one area in which improvements can be directly made, and on the grounds that they appear to be more robustly in favour of reforming the financial services industry, I’d tepidly endorse the Lib Dems on economic matters.