Election 2010: What’s at stake

So now we know: the UK General Election will take place on 6 May. Four weeks of promises and pantomime repartee (Oh yes you did! Oh no I didn’t!). But despite the widespread cynicism surrounding politics and politicians, the General Election is a serious matter. Not only will the outcome map the path for the British economy over the next few years but it will also have a direct bearing on employment and profitability in the drinks sector.

Whatever your political loyalties, if the UK economy fails to recover vigorously and sustainably, prosperity will suffer, personal disposable income will be reduced and profit opportunities will diminish.

But as the voters try to reach a verdict, the politicians are already administering heavy doses of obfuscation. Take the case of excise duties. Labour is committed by the recent Budget to increasing the tax on alcohol by two percentage points above the rate of inflation for effectively the life of the next parliament.

In some respects, that offers certainty, albeit painful. But experience shows that the Treasury regards alcohol as a soft touch, so under Labour, Alastair Darling’s plans represent a minimum. There is still scope to levy a luxury rate of VAT (not excise duties, note) on items such as wine, especially Champagne.

For their part, the Conservatives have given no pledge to be less aggressive. Indeed, George Osborne, their prospective Chancellor, has said he sees no need to raise any taxes over and above those levied by Darling last month. Significantly, however, apart from abandoning part of the planned rise in National Insurance next year, Osborne has been silent about reversing measures introduced in the March Budget.

Indeed, the only duty rise the Conservatives have promised to reverse is the swingeing increase on cider. As reported by the drinks business on Wednesday, that was abandoned in the Commons as part of the last-minute winding up of business, and will be removed from the start of June, unless Labour wins, in which case it will be reimposed.   

Tax experts say that there are just three ways to raise significant revenue; increasing either income tax or VAT or by cutting state spending, with the latter being by far the least certain. Both Labour and the Conservatives say they can save billions by cutting waste (prompting the question of why it has not been done before).

Gordon Brown says he will protect spending on schools and hospitals (but not “education” and “health”, so universities and other parts of the NHS are vulnerable). He is also committed to income tax rates being unchanged, especially the 20p standard rate. But he leaves himself enormous wriggle room by omitting to extend the pledge to tax thresholds. So technically he could keep his promise but still increase personal taxation at the standard rate.

Equally, Osborne says he has “no present plans” to increase the rate of VAT but in the same breath says that no pledge is forever. Furthermore, only about 60% of goods and services are subject to the standard rate, so zero- and lower-rated items such as domestic fuel, food and newspapers could be brought into the wider net to bolster revenues.

Undoubtedly there will be promises and pledges in abundance over the next four weeks. The sensible (and the cynical) will not take them entirely at face value. The budget deficit of some £170 billion a year has to be reduced and there is no painless way of achieving it.

Finance on Friday, 09.04.2010