FTI Consulting Public Affairs Snapshot: Running into a headwind – Why the UK Government is struggling to deliver on its domestic policy promises

The violence that Russia has sparked on the continent has rightly distracted the minds and efforts of those across Westminster, but the conflict will not go on for ever. There will be a time when it ends or stabilises to the point where attention is directed elsewhere. When this happens, the Prime Minister will need to be ready with action. As a General Election looms- most likely two years from now – the UK’s electorate will be looking for evidence that he is delivering on his domestic policy promises.

Johnson’s policy triptych was always ambitious, but few, if any, could have predicted the challenging context in which it will now need to be delivered. As with any new policy, each element relies on the Government to commit time and money to converting plans into tangible deliverables. Time is a commodity that is always in high demand across Westminster, and the public finances are already stretched to their limits as unprecedented Government spending during the pandemic is combined with huge inflation.

While higher-than-expected tax revenues have given The Chancellor a degree of “fiscal headroom”, this breathing space could be erased all together with a rise in interest rates. The UK will pay £83 billion in debt interest over the next year, compared to £36.8 billion in the year before the pandemic, and the Government may have to deliver a package of consumer support in the Autumn when energy bills are set to rise again. These factors will make the task of delivering on manifesto commitments even more challenging than it was already going to be.

While the General Election now looks set for 2024, the scale of the task means that time is short. A lack of more visible progress will be pounced by opponents, so the Government must find ways to demonstrate how seriously they are taking the promises they made in 2019.

Levelling Up

In tandem with Brexit, Levelling Up won over the ‘Red Wall’ seats in the north of England, as constituencies of voters that felt “forgotten” by Westminster were wooed by a message of regeneration and renewed economic opportunity.

While the publication of the Levelling Up White Paper, in February 2022, delivered the most structured articulation so far of what this policy agenda could mean in practice, the two years it took to be produced has cost valuable time. The plan has also been criticised on several levels, including for a significant lack of ‘new money’ commitments and timeline changes to key commitments from the 2019 manifesto.

The Resolution Foundation’s ‘Blue Wall Study’ noted that the so-called Red Wall has more working age welfare spending than other areas and is therefore more vulnerable to changes in “benefit generosity”. As inflation makes money less valuable, a lack of direct action on benefits in the Spring Statement risks leaving many in this most politically sensitive of areas struggling to make ends meet. Considering the wider economic strain the Government is under, it will be a challenge to invest into these areas in the way that is needed to deliver meaningful change in a short timeframe.

If the message of ‘Levelling Up’ is going to carry the Conservatives to victory at the next election, then it is critical that the Government demonstrate that their manifesto messages have been backed up by real action. If it can’t, then those people that changed habits of a lifetime to vote Conservative in 2019 could revert to type, vote Labour again and rebuild the Red Wall.

Net Zero

The UK’s Net Zero targets have been praised by some for their ambition and scope. Recently though, concern has been mounting over the practicalities of how the country will achieve these now legally binding goals, with the Conservative MPs of the Net Zero Scrutiny Group proving particularly vocal in criticising a perceived lack of rigour regarding cost. For a Government that is already struggling to balance the books, this sort of opposition from its own backbenches is something it could very well do without.

The Net Zero Strategy made clear that the UK’s transition must be for consumers and customers, placing much of the responsibility on the highest-emitting industries and reiterating that customer choice must be protected. To date, though, no real protections have been offered and the Government is still yet to set out clear plans for which technologies it will prioritise. Until this happens, it will be impossible to know how well protected, or not, consumers will be.

As the public becomes more attuned to the financial burdens that reaching Net Zero will involve, there is broad concern that the targets that have been set are unachievable unless the Government increases the amount of money it is prepared to commit in consumer support funding. Without this, households around the UK may be on the hook for thousands of pounds to install low carbon technology that may or may not deliver the environmental benefits that are required.

The Net Zero review, released by HM Treasury, pointed to private investment as the main financial driver behind decarbonisation, but the Government still has a long way to go in developing a workable green taxonomy. This vital step is needed to create the regulatory environment in which private investment is both encouraged and facilitated to come to Britain and underpin the transition.

Some are now suggesting that the crisis in Ukraine should serve as an accelerator for Net Zero, as nations look to end their reliance on Russian oil and gas and increase their energy security. While the UK and others, including Poland, have pledged to phase out the import of Russian gas by the end of the year, the reality is that the journey to Net Zero was always going to include an element of fossil fuel while the right technology and regulatory environment was developed to support widespread low-carbon solutions. Because of this, the UK is nowhere near being ready to support a low-carbon dominant energy landscape, regardless of the geo-political credits this may bring.

Social Care

As the Prime Minister stood on the steps of No 10, in July 2019, stating that it was his job “to protect you or your parents or grandparents from the fear of having to sell your home to pay for the costs of care” there was already concern about how realistic this pledge really was.

In September 2021, Boris Johnson announced plans to provide an additional £12 billion of funding per year for health and social care on average over the next three years, to be funded by a new, UK-wide 1.25% Health and Social Care Levy to be introduced from April 2022 via a rise in National Insurance. Some £5.4 billion of the funding was earmarked for social care, with £3.6 billion having been allocated to reform how people pay for social care, including the introduction of a cap on care costs.

In advance of the Spring Statement, The Chancellor, Rishi Sunak, had been urged by many on the Conservative backbenches to delay the planned National Insurance rise to help households manage their costs. Instead, he raised the starting threshold for National Insurance by £3,000, to £12,570, aligning it with income tax and costing the Government around £6 billion in the process. Labour have argued that this was not a big enough intervention, noting that the increase in the threshold will mean more people are captured in the new bracket as wages rise.

Now that the tax will not be levied in its original form, tangible progress on social care is looking increasingly unlikely prior to the next General Election. While Sunak could borrow the money, that would not align with previous commitments to pay for day-to-day spending via taxation and bring down overall debt levels. With this in mind, it could be the case that social care yet again becomes a problem for another Government to deal with.

Conclusions

While some of the factors that have created the current fiscal climate are far outside of the Government’s control, their lack of progress on domestic policy can be traced back to before the pandemic, energy price rises, and the war in Ukraine.

An ambitious policy platform won over voters in 2019, but as is common with the Prime Minister there was a lack of detail as to how it would be delivered. Now, in a challenging climate, its weaknesses are being exposed.

As the focus in Government soon shifts to winning a new mandate at the next General Election, it remains to be seen what will becomes of the domestic agenda that delivered an 80-seat majority in 2019.