Bulletin: Manifestos, tax warning and wage growth

Election watch

This week, the political parties launched their election manifestos. Key policies relevant to the food and consumer goods industry include:

Conservative party

• Employee national insurance (NI) rate to be cut by 2p by April 2027. Full abolition of NI by the end of the Parliament

• Abolition of national insurance for the self-employed by the end of the Parliament

• “Triple Lock Plus” for pensions – ensuring the state pension is not impacted by income tax

• Creation of 100,000 more apprenticeships by the end of the Parliament

• Migration to fall each year with a legal cap on migration, limiting the number of work and family visas

• Tobacco & Vapes Bill to return in the first year of the next Parliament

• Limits on the advertising of HFSS

• Further studies on ultra-processed foods

Read our Conservative manifesto article for more details and IGD opinion.

Labour party

• A New Deal for Working People within 100 days

• Economic stability with tough spending rules

• Action to ban advertising of "junk" food and sale of energy drinks to children

• Reduce food prices by removing barriers to business trading

Read our Labour manifesto article for more details and IGD opinion.

Tax and spend warning

The Institute for Fiscal Studies (IFS) has warned that the next government will need to cut public spending, raise taxes or increase borrowing. In its report, How have the size and shape of the UK state changed? The IFS states “After a decade of austerity, the strains of a pandemic and the pressures of a rising population, public services were increasingly struggling to deliver what was asked of them within tight funding limits…. Further top-ups to spending require tax rises or increases to borrowing.”

Unemployment and inactivity

The latest data from the ONS reveals a slightly weaker labour market with unemployment at its highest level for two and half years (4.4% from February to April). Vacancies decreased for the 23rd consecutive period. Inactivity also continues to increase to 22.3%, its highest level in nearly a decade, especially among younger adults.

IGD Opinion

Economic inactivity amongst people of all ages is a significant concern. On the economic side, a large body of inactive potential workers represents a loss of productive capacity, whilst on the fiscal side it implies an increase in the burden of benefits. There are also significant social impacts. Whichever party wins the general election, tackling this persistent problem will be a high priority for the next government.

Wage growth

Despite the increase in unemployment, the ONS has reported that the average UK wage increased by 5.9% year-on-year (seasonally adjusted, including bonuses) for February-April 2024. Inflation in April stood at 2.3%, so the “real” value of the average wage continues to increase.

IGD Opinion

Wage growth in April may have been supported by a sharp increase in the National Living Wage (NLW), which rose by around 10%, benefitting around 5% of the UK workforce directly. Cuts to National Insurance (NI) may also have had some effect.

These cannot be the only factors at work, however, since wage growth has been high for some time, despite fairly weak economic performance and signs of weakening labour demand. The exact reason is unclear, but respondents to the Bank of England’s Decision Makers’ Panel continue to anticipate strong wage growth in the year ahead.

Higher average pay will be helpful for pensioners since under the government’s “triple-lock” rule, it will mean a large increase in the state pension – at considerable public expense. In fact, pensioners may gain more overall than workers do.

The government currently plans a below-inflation increase in these benefits. This means that the income gap between those on benefits and those in work will likely grow. Rising average pay will likely contribute to inflation, especially in labour-intensive service businesses, making the Bank of England reluctant to implement base rate cuts until there are signs that wage growth is fading.

No growth

The ONS has reported that GDP has shown no growth in April and has increased by 0.7% for the three months to April 2024. It is likely that the wet weather in April impacted retail sales and construction.