• The Invisible Hand

Election Special: Liberal Democrats

This article examines the economic policies of the Liberal Democrat Party before the UK General Election on the 12th December 2019. There will be a new article each day of the next week so please subscribe for updates.



Election coverage tends to treat economic policy as a separate affair from the NHS, Brexit and the environment. However, economics links all of these policies together and therefore economics must be the driving factor behind anybody's vote. Economics looks at welfare and how to maximise our living standards and that is fundamentally the most important consideration for any voter. Keep on reading to learn more about each party's specific policies...


The Liberal Democrats have always struggled on economic policy although it tends to be masked by their other main policies like remaining in the EU or abolishing tuition fees. This is because they have adopted the ‘centre’ ground so they have some members who want to verge on a free market direction and others who want more support for welfare and public services. This time they seem quite confused and have decided to reintroduce austerity which even the Conservatives have decided to reject.


They have pledged to run a budget surplus of 1%. They are not just going to balance the budget but they are going to tax people more than they spend to pay down debt. The government should not be tacking money from people pockets so aggressively to pay down their national debt. National debt diminishes in importance naturally through economic growth anyway. After 9 years of austerity this should not be the government’s main priority when money is desperately needed to rebuild infrastructure to improve productivity which is fundamentally the biggest economic problem for the UK at the moment.


They have pledged to spend £130bn on infrastructure which is definitely needed. However, this does not seem compatible with their previous policy so this probably would not happen or there would have to be ‘the biggest fiscal squeeze in peacetime’. It is clear that the Liberal Democrats have never governed as they do not understand the practicalities of changing government spending this much. Without a doubt taking this much money out the economy would bring us into recession. They dream of a so called ‘remain bonus’, but the only possible bonus to the UK is a productivity bonus when this problem is properly tackled. Growth is not substantially lower than before the EU referendum (because it was already poor), therefore there would be no sudden surge to pre-Brexit levels since pre-Brexit level were equally poor. Productivity was a constraint on our economy before the EU referendum and it will remain so even if we do not leave the EU.


It seems odd that the Liberal Democrats would choose such an austere position on government spending. Almost certainly they would not adopt the severe measures necessary to meet their target. They have added a bit more flexibility by setting a 1% target in a downturn. Yet this harks back to pre-Keynesian times such as the Great Depression when the government did not respond to a crisis with fiscal stimulus. Much more flexibility is needed to respond to a crisis and this policy from the Liberal Democrats expresses supreme economic incompetency which I am struggling to comprehend how it could have come about.


Their other economic policies include an idea to scrap business rates. This can be very beneficial to small business. It would help to level the field for high street shops with internet firms. There should be a level playing field but high streets which are clearly not profitable should not be supported. Rightfully, they also want to increase corporation tax to 20% which is still very low by international standards. There are also similarly attractive plans to spend £2bn on expanding access to high-quality broadband. Although this is insignificant


Overall, some Liberal Democrat policies on the right path and they are following some of the same directions as Labour. However, they do not make the same radical changes and people may decide that more action is needed to fight the productivity problem. Nevertheless all of this is irrelevant since it is undermined by their totally irrational and not credible budget target.


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