As the UK gears up for a national election on July 4, Prime Minister Rishi Sunak and the opposition Labour Party are zeroing in on the economy as their primary campaign focus. Prime Minister Sunak recently highlighted a promising outlook after new data revealed Britain’s inflation rate had dropped to nearly 2%. However, Labour’s Rachel Reeves, aiming to replace Jeremy Hunt as finance minister, emphasized that many voters still feel significant financial pressure.

Both parties have outlined their economic policies, showing notable similarities as Labour leader Keir Starmer has steered his party toward the political center. Britain’s tax burden is at its highest since World War II, following increased public spending during the pandemic and a spike in energy prices in 2022. Sunak aims to distinguish his party by proposing the elimination of all social security contributions paid by workers in the long run. Labour, however, deems this plan impractical and has pledged not to raise income tax or corporation tax rates. Instead, they plan to impose value-added tax on private school fees and tax the overseas income of UK residents with non-domiciled status. Both parties’ reluctance to broadly increase taxes raises concerns about how they will fund public services and address public finances.

Hunt’s future public spending cuts have been criticized by external economists as implausible, given the existing strain on many public services. Hunt argues that future productivity gains in the public sector will justify his fiscal plans, a challenge that has historically proven difficult. Labour promises to enhance public services and end chronic under-investment in infrastructure and other areas crucial for economic growth.

Sunak and Hunt introduced new budget rules in 2022 following a bond market crisis during Truss’ brief tenure. The main rule mandates that public debt should decrease as a share of GDP within five years, a target the government is barely meeting, leaving little room for tax cuts or increased spending. Another rule caps government borrowing at 3% of GDP within the same timeframe. Labour intends to maintain the debt target but will apply the borrowing rule solely to day-to-day spending, allowing for more borrowing to fund investments. However, they have abandoned a plan to borrow up to £28 billion annually for green investments.

Labour aims to decarbonize the power system by 2030, five years ahead of the Conservatives’ target. Their plan includes facilitating new onshore wind farms, creating a state energy company, and establishing a national wealth fund to invest in green technologies. The Conservatives argue these plans will be far more expensive than Labour claims. Last year, Sunak postponed a ban on new petrol car sales but reaffirmed his commitment to achieving net zero emissions by 2050.

Sunak has improved relations with the European Union, yet Brexit continues to impact the economy negatively. New checks on food imports from the EU present fresh challenges for businesses. Starmer has vowed to enhance the UK’s relationship with the EU from 2025 when the partnership deal is reviewed, though he insists the UK will not rejoin the single market or a customs union.

In the lead-up to the 2019 election, the Conservatives pledged to build 300,000 new homes annually in England by the mid-2020s. However, plans to relax planning rules were scaled back to avoid voter backlash. Last year, fewer than 250,000 homes were built across England, Wales, and Scotland. Labour promises to reform the planning system to speed up the construction of homes and infrastructure, granting more powers to local authorities to expedite projects.

Labour plans to significantly limit zero-hours contracts, enhance job security for new hires, and increase sick pay. They also intend to repeal laws restricting trade union activities and promote flexible working arrangements. Employers have voiced concerns, prompting Labour to promise consultations with them on policy. The Conservatives warn that Labour’s proposals could lead to job losses and more strikes.

Starmer emphasizes the political volatility since Brexit, with five Conservative prime ministers in eight years contributing to low business investment. He argues that a stable Labour government, potentially with a strong parliamentary majority as polls suggest, could reduce investor anxiety.