Overlay
Economics

The Year of the Ballot Box: how might elections sway policy?

Next year could see more than 40 government elections globally. John Briggs looks at what’s at stake in the US, the UK – and beyond.

The year ahead is set to be a busy, significant year in terms of government elections. As well as the US and UK, votes are due to take place in the world’s biggest democracy, India, and in geopolitically significant countries such as Taiwan, Mexico and South Africa. Given its tense relationship with China, what happens in Taiwan is pertinent from a geopolitical perspective but, as we’ve seen in recent years, flashpoints can arise anywhere in the world.

Let’s run through what could happen in the US and UK elections. 

The US: Biden vs Trump, round 2

Control of the Presidency, the House of Representatives and the Senate are up for grabs in 2024. Most eyes, of course, will be on the presidential race, and as things stand the likeliest candidates are incumbent president Joe Biden for the Democrats and former president Donald Trump for the Republicans.

Who’s likeliest to win? It’s worth noting that neither is a popular choice – both have approval ratings of 41% at the time of writing. Perhaps unsurprisingly, the signs so far are that it’s going to be a close race: Real Clear Politics has Trump ahead by 1%, while PredictIt has Biden ahead by 6%. Of course, these are very early days, and it’s too soon to rush to any judgments.

The 2024 US General Election: Trump vs. Biden (% approval rating)

Source: NatWest, Predict.org, Bloomberg

As ever, the state of the economy is likely to be a major factor in voting decisions: in a recent poll by NRP, 65% of respondents stated that inflation is “a very big problem” in the US. This represents a clear risk for President Biden as the incumbent generally receives the blame for any economic problems. While we expect inflation to fall further in 2024, any economic slowdown – including due to the lagged impact of Fed rate hikes – is likely to worry the President.

But it’s not just about the presidency. The races for the House and the Senate are also important as their outcome influences whether the President can implement his plans.

It seems that the Republicans hold a clear advantage in the Senate vote. The Democrats currently have a slim majority, with 51 against 49 Republicans, so it wouldn’t take much of a swing for the Republicans to turn that around. As things stand, we believe that’s the likeliest outcome. Meanwhile, the race for the House of Representatives looks to be a toss-up. Regardless of the presidential outcome, a Republican Senate flip would mean there would be no Democratic sweep, so even if President Biden won a second term there would be mixed government, and probably gridlock when it comes to passing major legislation.

What does all this mean for the policy outlook?

The main issue for the next Congress and Administration will be the “Trump tax cuts” from 2017, which are set to expire in 2025. It’s been estimated that extending them would cost more than $3.3trn through 2033. The implications are potentially significant, both for investors and for companies due to the impact on long-term funding rates. Foreign policy is also an important consideration, with questions about America’s role in the world under the two candidates. But we’d be surprised if there are any major changes to the US approach to Ukraine or Israel regardless of who wins, and another similarity is that both major parties see China as a rival.

The UK: a good chance of a swing towards Labour

Unlike in the US, the date of the next UK general election is still to be decided, but the likeliest time is September or October 2024.

The polls are signalling a change of government is highly likely, with the opposition Labour Party in a huge lead – current projections are for a Labour majority in Parliament, although the race could tighten as the vote approaches. Even if Labour fails to secure a majority, it would have a good chance of forming a government through a coalition with smaller parties.

UK election outcomes, implied probabilities from betting markets (%)

Source: NatWest, Betfair

While there are policy differences between the main parties, the UK’s fiscal situation is likely to prevent any major spending. What’s more, Labour is committed to adhering to the ruling Conservatives’ existing fiscal rule that public sector debt as a share of GDP should fall to below 3%.

The risk of tax rises is greater under a Labour government, but the party has indicated that it would not raise income tax or the main rates of VAT (a consumption tax) or impose a new wealth tax. Instead, it would end private schools’ exemption from VAT, reform non-domiciled tax rules, apply a stamp duty surcharge to overseas house buyers and impose a ‘proper’ windfall tax on energy companies. Most of these policies are only vaguely defined at this stage, but they give a sense of Labour’s approach.

Labour has also signalled a desire for a closer trading relationship with the EU, albeit one that would fall short of EU single market or customs union membership. This raises the question of what concessions the EU would be prepared to make.

What can we expect from elections elsewhere?

Taiwan

A Democratic Progressive Party (DPP) presidency looks likely, with current vice-president William Lai the favoured candidate. The potential for a united opposition ticket between the Taiwan People’s Party (TPP) and the Kuomintang (KMT) would make the election much closer. China has signalled its preference for a KMT presidency: the most positive outcome for cross-Strait relations and markets.

India

The Bharatiya Janata Party (BJP) is likely to retain power in 2024 – an outcome that markets appear to have priced in. Fiscal expenditure might increase as a result of campaigning: state governments made new announcements ahead of this November’s state elections, and this may be replicated in the general elections as parties try to outdo each other’s plans.

Mexico

This will be a historic presidential election in Mexico as the two leading candidates are women, leading to the country’s first female president. The candidate for the governing coalition, Claudia Sheinbaum, leads the polls with around 50% support, vs 20% for the opposition. Therefore, we expect a continuation of the current complex policy mix: some fiscal restraint; nationalist and domestically-focused policies (especially around energy); a poor environmental record; and, greater pressure on certain institutions (excluding the firmly independent central bank).

South Africa

For the first time since the end of apartheid, opinion polls suggest that the ruling African National Congress (ANC) could lose its majority. An agreement between opposition parties sets the stage for extreme election outcomes. An ANC coalition with the Economic Freedom Fighters (EFF) would push the country to the economic far left, and under China and Russia’s geopolitical influence. In contrast, a government led by the main opposition Democratic Alliance (DA) would pull South Africa back to the centre-right and immediately build ties with the West.

This material is published by NatWest Group plc (“NatWest Group”), for information purposes only and should not be regarded as providing any specific advice. Recipients should make their own independent evaluation of this information and no action should be taken, solely relying on it. This material should not be reproduced or disclosed without our consent. It is not intended for distribution in any jurisdiction in which this would be prohibited. Whilst this information is believed to be reliable, it has not been independently verified by NatWest Group and NatWest Group makes no representation or warranty (express or implied) of any kind, as regards the accuracy or completeness of this information, nor does it accept any responsibility or liability for any loss or damage arising in any way from any use made of or reliance placed on, this information. Unless otherwise stated, any views, forecasts, or estimates are solely those of the NatWest Group Economics Department, as of this date and are subject to change without notice.

scroll to top