UK economic indicators under control

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With the three big economic indicators under firm control, the government would hope to deploy its ?Britain is working? slogan and seek its electoral fortune whenever Tony Blair decided to go to the country in 2005.

However, a general election in May carries two risks, which would be avoided if the vote was held in February. The first is next year's Budget, which promises to be an uncomfortable affair for Gordon Brown.

The chancellor can avoid tax rises in the spring because it will be too early to be certain he has broken one of his fiscal rules. However, even his forecasts will show his ?golden rule? that the government should borrow only to invest met by the narrowest of margins.

In any event, the opposition will have a set-piece opportunity to accuse the chancellor of a rusty grip on the public finances.

All the respected independent voices who have already said that the government is set to increase taxes in the next parliament if it sticks to its current spending plans are bound to do so again.

These include the National Institute of Economic and Social Research, the Institute for Fiscal Studies, the International Monetary Fund and the Organisation for Economic Co-operation and Development.

It is likely to be very different from most recent pre-election Budgets, when chancellors have showered goodies on a (sometimes) grateful electorate.

Norman Lamont threw caution to the wind in 1992 and introduced a 20 per cent starting rate of income tax even as the public finances were plunging deep into the red.

The basic rate of income tax was cut just before the 1987 and 1997 elections by Nigel Lawson and Kenneth Clarke respectively. In 2001, Mr Brown defused the fuel crisis of the previous autumn by reducing petrol taxes by 2p a litre.

The second risk of a May election is that the housing market takes a tumble. Many economists might welcome a correction in prices from levels they currently see as unsustainable. But the politics of falling house prices would be extremely difficult for the government.

A sustained fall in house prices is not likely to be either apparent or painful by February.

By May, there could have been seven consecutive months of falling prices, and ?Britain is working? might seem a like an unworkable slogan.

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