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The Economy
Unit 4: Political issues
by Dr Claire Annesley
The Lecturer in European Politics at the GIPP, School of Social Sciences at the University of Manchester writes for BBC Parliament

Economic strength has produced global leaders
The United Kingdom is a rapidly changing nation in a rapidly changing world.

The politics and policy of the two main parties - the Conservative Party and the Labour Party - are transforming to address the challenges of the new context.

Some political scientists argue that, in this new political era, party politics is less ideological and more pragmatic.

ALSO IN THIS SECTION: Unit 4 - UK Political Issues

This claim can be investigated by looking at five issues which have particularly dominated UK politics and elections in the post war period and since the 1980s.

In this unit, the main issues and the main party positions on economic policy, the welfare state, law and order, race and ethnicity and Northern Ireland are spelled out and evidence of convergence and divergence is highlighted.

Economic policy shapes how the economy of a country is run.

Traditionally there have been clear ideological and political positions concerning the relationship between markets and the state.

The left and the right have had different aims and visions regarding the extent to which, and the manner in which, the state should intervene in the economy.

Photo of sale sign
Politicians of the right have promoted private property and free markets while politicians on the left have supported collective ownership of key sectors of the economy and state intervention in the economy.

These are, however, somewhat stylised versions of the economic policies and party ideologies of the Conservatives and the Labour Party.

In reality the differences have not always been so clear cut.

Post-war reality

The post war period from 1945 to 1975 was marked by cross party consensus on economic policy.

This consensus embraced nationalisation (state ownership of some key industries), the management of demand in the economy through the manipulation of tax and interest rates, as well as varying government spending (Keynesianism).

Also, during this period, the welfare state was established. This was funded through progressive taxation and governments of the left and right intervened in the economy to promote full employment (Fielding, 2000, 13-14).

The post-war consensus broke down in the 1970s and this can be explained by the severe economic difficulties such as inflation and high levels of unemployment at the time.

The economic policy responses of the two main parties went in two quite different directions.

The Labour Party maintained their commitment to Keynesianism, nationalised industries, the welfare state and redistributive taxation policies until the late 1980s.

The Conservatives, under the leadership of Margaret Thatcher, moved towards a stance which emphasised controlling the supply of money to keep inflation in check (monetarism) and freeing up the economy from the interference of government.

Between 1979 and 1997 the Conservatives radically altered the ownership of the economy by privatising most publicly owned industries.

They withdrew many state subsidies to industries and changed the nature of taxation, cutting the level of tax levied on the rich and reducing welfare benefits (Moran and Jones, 2001, 586).

Thatcher's legacy

Meanwhile, successive electoral defeats led the Labour Party to acknowledge that their traditional approach to economic policy no longer suited the contemporary global economic conditions.

In
Photo of Neil Kinnock and the late John Smith
a series of policy reviews under the leaderships of Neil Kinnock, John Smith and then Tony Blair the party revised its approach to economic policy.

It moved, gradually, to a broad acceptance of many aspects of the Thatcherite policy direction.

By the time Blair became leader the Labour Party had adopted a more monetarist macro-economic policy, it had dropped it commitments to high public spending facilitated by high taxation and to (re)nationalising industries.

Significantly, under Blair's leadership, the Labour Party even abandoned its ideological commitment to public ownership by reforming 'Clause Four' of its constitution.

Some commentators have claimed that there is now a new consensus on economic policy between the two main parties.

Indeed, the traditional left-right divide has blurred since both parties are now clearly committed to capitalism, to promoting 'sound money', to low inflation, private ownership and low taxation.

However there are still some clear policy differences between the parties in terms of how to manage the economy at the micro-level, that is, at the level of the firm, and regarding the degree to which the government should regulate or intervene in market forces.

Most significantly, the Labour Party is more inclined than the Conservatives to see an active and interventionist role for government in the micro economy.

It maintains that economic policy can, and should, promote competitiveness by influencing the level of investment, the required degree of education and training and the conditions of the labour market.

This is, some argue, a classic left or social democratic position in economic policy (Gamble and Kelly, 2001, 182) which sets it apart from the free market approach.

Dr Claire Annesley 2004
Department of Government
University of Manchester
email: claire.annesley@man.ac.uk



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