UK Election Watch: Nigel Farage enters the race, boosting Reform UK

The Debate

The two main candidates for Prime Minister went head-to-head earlier this week in the first debate of the campaign. The immediate outcome was close, with a YouGov poll putting Rishi Sunak marginally ahead of Keir Starmer, with 51% of the vote, compared to 49%. But the controversy surrounding potential tax increases under a Labour government dwarfed the event. Rishi Sunak repeatedly stated throughout Tuesday’s debate that if Labour were to be elected, households would be hit with a £2000 tax increase, a figure he said had been calculated by the Treasury.

This has subsequently been widely discredited, with the Permanent Secretary to the Treasury stating it should not be presented as an official estimate, given that the department was “not involved in the production or presentation of the Conservative Party’s document ‘Labour’s Tax Rises’ or the calculation of the total figure used”. In addition, the Office for Statistics Regulation has said that as well as being clearer on the source of the figure, Mr Sunak should have made it known that the figure reflected the total over a four-year period, not annually as implied during the debate.  The PM has denied misleading people and is standing by the figure; Starmer consistently dismissed the figure as untrue and “garbage”.

The Vote Split

The Conservative party faced a further blow this week, as former Brexit Party leader Nigel Farage threw his hat in the ring, taking over as leader of Reform UK and putting himself forward as a candidate in the Essex constituency of Clacton. He ruled out this exact possibility just three weeks ago. The move has spurred the first major shift in the polls since the election was called, with each of the seven polls since the announcement showing a marked increase in support for Reform. Indeed, Reform UK have gained between four to five points on average and are now polling around 16%, only six points behind the Conservative Party. 

The Impact

Growing support for Reform UK, however, does not appear to be impacting the Labour lead, meaning a sizeable Labour majority is still the most likely outcome. The latter has maintained its 20 to 22 point lead this week, with most of the increase in support for Reform UK coming from the Right of the political spectrum. Indeed, this mirrors some recent by-election results where Reform’s vote almost matched the Conservative vote and has appeared to contribute to losses of seats with considerable leads.

We have written about the macro implications of a Labour majority over the past couple of weeks. Insofar as recent polling suggests Labour continues to be on track for a comfortable to large majority with less than four weeks to go to the election, we see little macroeconomic variation from these scenarios. We only see a macroeconomically different outcome if the Labour majority was much smaller, but this currently looks unlikely. We will provide a full analysis of the macroeconomic impact in our upcoming Election Preview.