Winner of the New Statesman SPERI Prize in Political Economy 2016


Monday 8 July 2024

What the Conservative rout tells us about the popularity of a right wing populist government

 

It is jarring to see many journalists on election night fret about the Reform vote and talk about the rise of right wing populism when the main story of the night was the total electoral failure of a right wing populist government. The 2024 UK election isn’t a warning about the rise of right wing populism, but an example of how such populism can completely fail at the ballot box. It didn’t fail by quite as much as I hoped but never quite expected (the LibDems and Greens did well, but Labour’s vote share wasn’t enough to keep the Conservative seat total in double figures), but the overwhelming story was about the unpopularity of the government in all parts of the country and across political preferences.


What do I mean by ‘right wing’ and ‘populism’? The right wing populist gets votes by focusing on nationalism and immigration rather than privatisation and tax cuts. It is right wing in the sense of being socially conservative rather than to the right in terms of economics, although it can be both. Thatcher was not a right wing populist.


The Conservative party has always been socially conservative to varying degrees, although its MPs tend to be more liberal in their own views than party members or what Tim Bale calls the party in the media. What is the difference between being a politician favouring socially conservative policies and being a right wing populist politician? Typically a populist will do two things with any division on social issues.


The first is to elevate concern about change into fear of change and concern about difference into fear of difference. In the case of minorities or outsiders, politicians that want to profit from fear need to suggest that these minorities or outsiders are not just different, but represent a threat to the national majority. The second thing a populist does is to pretend that rather than there being a range of views on social issues in any country, instead there is a ‘silent majority’ of social conservatives whose views have been suppressed or ignored by a ‘liberal elite’. The populist becomes the embodiment of this silent majority, and this enables the ‘will of the people’ to override elements of a pluralist democracy (the courts, the media etc) that get in the populist’s way. This, together with attacking the human rights of minorities and opponents, makes right wing populism to varying degrees authoritarian as well as being socially divisive. The fact that populist’s claims are mostly untrue means that populists tend to lie much of the time.


Here is a conversation between Jonathan Miller and Enoch Powell (see from 5 minutes in until around 9 minutes), where Miller expresses the first difference between populists and simple social conservatives very well. Edward Health famously sacked Powell as a minister after his ‘rivers of blood’ speech, and for a long time I can remember all the mainstream political parties in the UK making a point about putting the language and policies of far right groups well outside the Overton window of acceptable political discourse.


In opposition under New Labour, leading Conservatives made much more of socially conservative issues like immigration, but they largely farmed out any populism to the party in the media, who talked about ‘waves of immigrants’ coming to the UK. This continued under the Coalition government, where Cameron and Osborne were mainly interested in pursuing the right wing economic agenda of a smaller state. (But this didn’t stop Osborne talking about the “closed blinds of their next-door neighbour sleeping off a life on benefits”.) As others have shown, the impact of austerity and the excuses made for it helped sow the seeds of what was to come.


So the Brexit referendum was not the start of populism within the Conservative party, but it began the process of making it complete. Crucial to making it complete was the threat from an archetypal populist, Nigel Farage. It was the threat of UKIP that made Cameron grant a referendum in the first place, and it was May’s heavy defeat in the EU elections that persuaded enough Conservative MPs that the only way they were going to survive Brexit was to give in to the hardliners and have their own populist leader, Johnson. It is often the actions of mainstream centre or right wing political parties that paves the way for right wing populism, just as cooperation between centre and left wing parties can keep populists out of power.


Brexit was right wing populism because it centred on fear of immigration and fear of sharing a bit of national sovereignty through international cooperation. Johnson’s success at the end of 2019 involved a classic right wing populist offer. Nostalgic nationalism and anti-immigrant through Brexit, combined with promises of levelling up and an end of austerity that were designed to appeal to socially conservative voters who were nevertheless on the left in economic terms. In France the recent advances of National Rally (RN) involve a very similar combination. On a more individual level it involved convincing voters that someone who didn’t appear to take himself or politics too seriously actually had voters’ interests at heart and was going to make a good Prime Minister.


A compliant broadcast media was crucial throughout the 2010s. Journalists overwhelmingly thought austerity was necessary, and largely ignored the growing majority of experts who thought otherwise. As a result they thought the Coalition government had been an economic success before the 2015 election, whereas all the normal indicators suggested the opposite. Brexit lies mostly went unchallenged, and the overwhelming majority of economists were given equal airtime to the few who promoted Brexit. All the abundant evidence [1] that Johnson was not fit to be a Prime Minister was largely ignored during the 2019 election, while the previous two years the media had feasted on Corbyn’s failings.[2]


Partygate burst that last bubble, in a way that the mainstream media could no longer ignore. A politician cannot represent the will of the people when they ignore painful restrictions on the people imposed for their own safety in a pandemic. It also became apparent that the Conservative party itself was not prepared to go along with the attractive economic offer that Johnson had put before the electorate. Instead of an end to austerity most MPs wanted tax cuts, but still wanted to be known as the party of fiscal responsibility. A more capable populist leader, more in control of their party, might have been able to set fiscal responsibility to one side (as Trump and the Republicans had done before). The party instead of ‘levelling up’ preferred giving money to friends or more resources to those who already had plenty.


Towards the end of the 14 years the problems with right wing economics became much more evident: stagnant productivity and therefore real wages, privatisation without adequate regulation, and growing government corruption intensified by the move to populism. Any remaining myth of economic competence created by the media was destroyed by the Truss fiscal event. The economic problems with populist nationalism also began to be felt. To top it all, a cost of living crisis generated by world wide increases in energy and food prices ensured that a majority of voter’s minds were on economic rather than social issues.


Yet even on the key issue of immigration the government hit problems. As in the early 2010s, it realised that reducing net immigration numbers would cause immediate economic damage, so it put in place an immigration regime that allowed skilled labour from outside the EU to replace EU workers. Together with additional factors this led to record immigration numbers. In addition the government was unable to stop potential asylum seekers crossing the Channel. This gave Farage the ammunition he needed to attack the government from the right. While Johnson could compete with Farage as a populist figurehead, Sunak could not.


It was a perfect storm, much of which was of the government’s own making. If there are general lessons here that extend beyond the particular time and place of the UK in 2024, I would highlight two. First, grafting right wing populism onto a government that more than anything wants to pursue right wing economic policies creates electoral problems. Promises to improve public services or reduce regional inequality will not be met. In addition, socially conservative policies themselves are often costly in economic terms (e.g. Brexit), but promising to enact these policies without doing so (e.g. not cutting immigration) can invite attacks from other right wing populists, leading to internal divisions and the government fighting elections on two fronts.

Second, populist leaders are particularly subject to hubris, often amplified by devoted media outlets or uncritical advisors. They therefore become vulnerable if acts of hubris are exposed. Right wing populist governments that survive are likely to be those that all but eliminate any critical media. The Conservative attempts to do that with the BBC were never going to be enough to prevent voters finding out about partygate or the consequences of the Truss fiscal event.



Although I have been writing this blog for some time, it has been entirely under a Conservative government in the UK. One of the reasons I began it at the end of 2011 was because the Coalition government was persisting with a macroeconomic blunder that happened to involve my area of expertise, so I thought it made sense to share that expertise as widely as possible. It was a blunder that other countries were copying, so I was lucky enough to become part of a global effort by macroeconomists to debunk some of the myths that governments were busy creating. Although what we were writing about was pretty grim, I still remember those days with some affection, perhaps because at that point the threat of UK right wing populism was less apparent than it subsequently became.


Once the intellectual battle over austerity was won, I became interested in why austerity had happened and how the media had enabled it. Posts about the details of macroeconomic policy became less frequent because there are only so many ways you can say that government policy is either bad or mad. After 2016 I began writing more speculative (for me) pieces about the political economy of the last 50 odd years.


I hope that commenting on this Labour government’s macroeconomic and other economic policies will be more interesting. I’m sure I will often remain critical, but I will also try to recognise the real constraints that even the best governments face and give praise where it is due. I hope it will be very different from blogging under the Conservative government of the last 14 years. It almost has to be, because the government of 2010-24 has been uniquely awful in so many ways. Above all else, it is hard to imagine that Starmer’s Labour will ever be seriously described as a right wing populist government.



[1] Johnson months before the election illegally shut down parliament! How can we in the UK wonder how a man who tried to overturn an election result can appear to be winning a race to be POTUS again, when a man who illegally shut down parliament could be elected Prime Minister just months later?!


[2] The media is not entirely to blame for this. A significant part of the anti-Corbyn side of the Labour party was more than prepared to see a populist right wing government rather than Labour government, while the left of the Conservative party always put their party first and largely kept their criticism of Johnson to themselves until they voted him out.



Monday 1 July 2024

Why tactical voting in this election could change the nature of the UK’s political debate

 

If Labour are bound to win this week, is there any point to tactical voting? Some on the left have suggested voting for a more progressive candidate who has no hope of winning, even if this might contribute to electing a Conservative MP. The rationale is to ‘send a message to Labour’. The current Labour leadership have treated some on the left of the party very badly, and the anger at that is justified. However I remain at a loss to see quite how a few extra percentage points for left wing candidates will influence those running Labour, when they have just won a landslide victory so soon after the large 2019 defeat.


There remain sound reasons to vote tactically, even if a Labour government is assured. For example who your local MP is does matter to many people in a constituency, particularly those who often through misfortune need their MP’s help. In this particular election tactical voting could also do something quite unique, which is to prevent the Conservative party becoming the official opposition. This post is about why that outcome is one which would have a huge progressive influence on UK politics.


There is a natural tendency to focus either on the party in power, or for those who take an active interest in politics on the party closest to our own views. (Yes, I know there are exceptions). However which party is the official opposition matters in numerous ways, beyond the parliamentary mechanics and ‘short money’. As anyone from other political parties will tell you, the media debate tends to be hogged by the government and official opposition. Furthermore, the issues that the government or official opposition care about ends up being what our Westminster obsessed media talks about. This can be very frustrating when the government and opposition share a view which a majority of experts see as incorrect.


This tendency is reinforcing, because my impression is that what some voters tell pollsters are important issues are the subjects they have recently seen covered by the media, which in turn will be driven in part by the debate between government and opposition. So while the government always has the most power in defining the political media landscape, the official opposition plays an important role as well. Third parties rarely get a look in when it comes to influencing the media debate.


We can be fairly sure what a Conservative opposition will want to talk about most during the next four or five years, because we have seen what issues they have focused on during the election and the past year or so. On economics it will be all about how Labour are raising rather than cutting taxes, but otherwise it will be immigration, asylum seekers and any other issue that they think will be popular with socially conservative voters. As most voters want to see better public services rather than lower taxes, it will be these socially conservative issues that dominate the UK political debate. Plus ça change.


Is it possible that a heavy defeat will lead to a sea change in the politics of the Conservative party? Almost certainly not, particularly as the party will be immediately thrown into a leadership battle where the views of the membership and the right wing press will be decisive. The party will not move towards the centre on economic issues because these groups and party donors do not want it to, and so pushing socially conservative views and attacking social liberals is all it has left.


If you need any further evidence, just look at what happened after 1997. After that overwhelming defeat, the Conservative party didn’t rethink their policy stance to be more in line with the views of voters. They certainly didn’t ask what had gone wrong with Thatcher’s neoliberal project. Instead they courted socially conservative voters by attacking Labour on immigration. It was the start of a journey that would lead to Brexit, embrace right wing populism and end with widespread corruption and the absurd Rwanda plan.


The Conservative party is now well to the right on social issues compared to 1997. In addition, it will have to deal with Farage, and all the evidence we have is that this will involve accommodation rather than hostility. Most Conservatives will tell themselves that the main reason the party lost so badly in 2024 was because the right wing vote was split, and that this split has to end. Whatever accommodation is reached, it is not going to make the Conservative party more socially liberal!


So if you hoped that a Labour government would mean that we would stop talking endlessly about immigration, or ‘illegal’ asylum seekers, or whether greening the economy is going too fast, you will be disappointed if the Conservative party remains the official opposition. The Conservative party as the official opposition will have at least two important negative impacts. First, it will influence to some extent what the Labour government does and what its policy positions are. Second, on many issues the views of socially liberal and economically left wing voters will be largely ignored by the media.


Perhaps one of the more important examples of this is Brexit. The Conservatives will pounce on anything they can claim involves the Labour government undoing or betraying Brexit, and that may make Labour overcautious in how quickly it decides to take major steps back towards the EU. As a result, it may delay rejoining the Customs Union or Single Market well beyond the tipping point among voters that I discussed here. That in turn will damage the economy, and for that reason the government’s own chance of survival.


The final, obvious point to make is that official oppositions tend to be the party that forms a new government if and when the party in power is voted out. A Conservative party well to the right on social and economic issues will find that hard to do, but as I have stressed recently governments can get unlucky, sometimes through no fault of their own (or faults which the opposition more than share). Even if that doesn’t happen, voters eventually get bored with the party in power, and become attracted by a leader of a Conservative opposition that has the sense to keep how right wing the party is as out of sight as possible. For this reason, a Conservative opposition will eventually become a Conservative government. Once again, the evidence we have from 1997 onwards is that a future Conservative government will quickly undo most of the good things the previous Labour government managed to do, and then go further to add additional layers of destruction on top. As I argued here, socially conservative policies also tend to screw up the economy.


Now imagine if on Friday we learn that the Liberal Democrats have just beaten the Conservatives to get second place in terms of seat numbers, and so will become the official opposition to a Labour government. What the overall dividing lines between a Labour government and Liberal Democrat opposition will be are difficult to predict, but this in itself will make the UK political debate more interesting and probably more informed.


Neither a LibDem opposition or Labour government will attempt to push the very illiberal positions currently promoted by the Conservatives. The Libems will not because they are social liberals, and the Labour government will not because they will (initially at least) still regard the Conservatives as their main enemies and will not want to play into their hands. (See what happened to the Tories with Reform at this election.) Indeed it seems more likely that both Labour and the LibDem opposition will attempt to portray current Conservative positions on asylum seekers for example as well outside the Overton Window of acceptable political discourse.


If that seems too good to be true, recall that this was once the norm in the UK. The positions of some Conservatives and Farage are not very different from those pushed by far right groups like the BNP in the past, yet these far right groups, and the occasional Tory like Enoch Powell who took similar positions, were ostracised by the political mainstream. It would be to the political advantage of a Labour government and LibDem opposition to do the same again.


Becoming a third party would also pose more serious problems for the internal cohesion of the Conservative party. One nation Conservatives have so far rather meekly gone along with the illiberal rhetoric of their party, even though they themselves have very different social views. Having access to power or the possibility of power is a powerful adhesive keeping the Conservative party together. But if the possibility of power seems remote, that may be enough to push the few remaining one nation Tories to switch parties after any Farage accommodation.


Because the Conservatives are deeply unpopular, and in addition are losing votes to Farage, this election is an almost unique opportunity. Some recent polls put the LibDems within reach of the Conservatives in terms of seat numbers (see also here), and one has the Tories in third place. The eventual result will depend entirely on the extent and efficiency of tactical voting. As I pointed out here, there appear to be only around a dozen seats where the Conservatives are reasonably safe from tactical voting. Every other Conservative seat can be won as long as voters know which candidate is most likely to beat the incumbent.


In an appendix I have listed those seats where it makes sense for tactical voters to vote either Green or LibDem. In all other seats a tactical vote should be for Labour. Tactical voting for Labour in normally safe Conservatives seats where Labour are the main challenger remains vital. The LibDem total of seats is certain not to exceed 100, so it needs people who would otherwise vote LibDem or Green to vote Labour in numerous and previously safe Conservative seats to keep the Tory seat total down.


Appendix


This only covers seats in England and Wales.


There are two seats where tactical voting should be for Greens, as local polls show they are the strongest challenger


North Herefordshire, Waveney Valley


The Greens are also likely to win in Brighton Pavilion and Bristol Central, but the Conservatives are very unlikely to win so if you prefer Labour or the LibDems, vote for them.


Seats where tactical voting should be for LibDems


Bicester & Woodstock - local poll has LD = Lab, but majority of MRP and all TVs for LD

Brecon - most MRPs have LD as main challenger and all TVs suggest LD

Carshalton - all MRPs have LD as clear challenger

Cheadle - Lib Dem constituency from 1997 to 2015, all MRPs have LD as main challenger

Chelmsford - almost all MRPs have LD as main challenger, all TVs suggest LD

Cheltenham - all MRPs have LD as clear challenger, all TVs suggest LD, was LD seat

Chichester - almost all MRPs have LD as clear challenger, all TVs suggest LD

Chippenham - all MRPs have LD as clear challenger, all TVs suggest LD

Didcot & Wantage - most MRPs have LD as main challenger, all TVs suggest LD

Dorking - all MRPs have LD as clear challenger, all TVs suggest LD

East Hampshire - most MRPs have LD as main challenger, all TVs suggest LD

Eastbourne - LD twice won in recent history, always clear 2nd. MRP + TV clear LD choice

Eastleigh - LD MPs in recent history, MRP + TV clear LD choice

Ely - most MRPs have LD as main challenger and all TVs suggest LD

Epsom - most MRPs have LD as main challenger and most TVs suggest LD

Esher - all MRPs have LD as clear challenger, all TVs suggest LD

Farnham - all MRPs have LD as clear challenger, all TVs suggest LD

Glastonbury - all MRPs have LD as clear challenger, all TVs suggest LD

Godalming - all MRPs have LD as clear challenger, all TVs suggest LD. Hunt’s seat.

Guildford - all MRPs have LD as clear challenger, all TVs suggest LD

Harpenden & Berkhamsted - almost all MRPs suggest LD, all TVs suggest LD, LD target.

Harrogate - past elections, all MRPs and all TVs suggest LD as clear challenger.

Hazel Grove - recent LD MPs. All MRPs and all TVs suggest LD as clear challenger.

Henley - All MRPs and all TVs suggest LD as clear challenger.

Honiton - New constituency. Almost all MRPs and all TVs suggest LD as clear challenger.

Horsham - Almost all MRPs and all TVs suggest LD as clear challenger.

Lewes - LD MPs in past. All MRPs and all TVs suggest LD as clear challenger.

Maidenhead - Most MRPs and all TVs suggest LD. May’s old seat.

Melksham & Devizes - All MRPs and all TVs suggest LD is clear challenger.

Mid Dorset - LD have won in past. All MRPs and all TVs suggest LD is clear challenger.

Mid Sussex - Most MRPs and TVs suggest LD.

Newbury - All MRPs and all TVs suggest LD as clear challenger.

North Cornwall - LD MP in recent past. All MRPs and TVs suggest LD.

North Devon - LD MP 2010. All MRPs and TVs suggest LD.

North Dorset - Majority of MRPs and all TVs suggest LD as main challenger.

North East Hampshire - Most MRPs and all TVs suggest LD.

North Norfolk - Was a LD seat until 2019. All MRPs and TVs suggest LD.

Romsey - LD came close in 2010. All MRPs and TVs suggest LD.

South Cambridgeshire - LD came close in 2019. All MRPs and TVs suggest LD.

South Cotswolds - New constituency. All MRPs and TVs suggest LD.

South Devon - All MRPs and TVs suggest LD.

St Ives - has been LD seat recently. All MRPs and TVs suggest LD.

St Neots - most MRPs and all TVs suggest LDs are main challengers

Stratford-on-Avon - most MRPs and all TVs suggest LDs are main challengers

Surrey Heath - All MRPs and TVs suggest LD as main challenger.

Sutton Cheam - has been LD seat recently. Almost all MRPs and all TVs suggest LD.

Taunton - has been LD seat recently. All MRPs and all TVs suggest LD.

Thornbury - All MRPs and all TVs suggest LDs as main challenger

Tiverton - Almost all MRPs and all TVs suggest LDs as main challenger

Torbay - Almost all MRPs and all TVs suggest LDs as main challenger

Tunbridge Wells - Almost all MRPs and all TVs suggest LDs as main challenger

Wells - All MRPs and all TVs suggest LDs as main challenger

West Dorset - LD have always been the main challenger, and all MRPs and TVs agree.

Wimbledon - All MRPs and all TVs suggest LDs as main challenger

Winchester - LD very close in 2019. All MRPs and all TVs suggest LDs as main challenger

Witney - All MRPs and all TVs suggest LDs as main challenger

Woking - Near all MRPs and all TVs suggest LDs as main challenger

Wokingham - Near all MRPs and all TVs suggest LDs as main challenger

Yeovil - LD seat in recent past. All MRPs and all TVs suggest LDs as main challenger


Seats with a LibDem MP:


Bath - fairly safe LibDem seat

Chesham and Amersham - was a safe Tory seat but won by LD in 2021 by-election.

Frome - LD in 2023 by-election but boundary changes. Most MRPs and TVs suggest LD

Kingston and Surbiton - Ed Davey’s seat. All MRPs suggest he should win.

North Shropshire – by-election win in 2021. Needs TV for LD.

Oxford West - Layla Moran’s seat.

Richmond Park - Sarah Olney won in 2019.

St Albans - pretty safe LD seat

Tewkesbury - majority of MRPs and all TV sites suggest LDs have best chance here.

Twickenham - pretty safe LD seat

Westmorland - Tim Farron, new boundaries suggest Con would have won in 2019.


Toss-up three way seats


The following are seats where MRP polls or TV sites are almost equally divided on whether Labour or the LibDems are the main challenger. Here local knowledge matters, but if the goal of tactical voting is to replace a Conservative with a LibDem opposition, then a LibDem MP rather than a Tory MP counts double a Labour MP rather than a Tory MP.


Beaconsfield – Majority of MRPs prefer Lab, but only TV site to call suggests LD.

East Grinstead & Uckfield - New constituency. MRPs divided. One TV site for Lab

East Surrey - Normally very safe Tory seat. MRPs divided. One TV site for Lab.

Hamble Valley - New constituency. MRPs and TV sites are divided.

Newton Abbot - LD close in 2010, but vote dwindled since. MRPs and TVs equally divided.

North Cotswolds – Nearly all MRPs have Lab>LD, but two TV sites call this for LD.

Runnymede - MRPs and TV sites are divided.

Sevenoaks – Majority of MRPs have Lab>LD, TVs divided.

Added 02/07/24

South Shropshire - Most MRPs suggest Lab>LD, and only TV to call suggests Lab, but LD challenger was MP from 2001-5.


In all other seats tactical voting where necessary should be for Labour.










Thursday 27 June 2024

UK Election Special: The Conservatives could lose almost every seat to efficient tactical voting

 

Of course MRP polls could be wrong. However while looking at many of these polls (using this very useful site from Peter Inglesby), the following observation struck me. There were only 17 seats where all the MRP polls agreed the Conservatives would win. That is 17 out of 631.


Maybe that is a result of one or two rogue MRP polls. So I looked at the most recent (on 26/06) MRP by WeThink. That has national vote shares typical of recent non-MRP polls and with the Conservatives firmly in second place above Reform. The MRP modelling translates that into only 76 Conservative seats with the Liberal Democrats close behind on 52 seats. All 76 seats are in England and Wales, with the Conservatives projected to lose all their seats in Scotland. What struck me was that in these 76 seats, the projected winning Conservative percentage vote share was normally between 30% and 40%. Even with a significant Reform percentage, that would seem to give efficient tactical voting among 'progressive' (Labour, Liberal Democrat and Green) voters a strong chance of overtaking that Conservative vote share.


It therefore seemed worth spending a bit of time not watching football, but instead doing a few calculations. In each of the seats WeThink have the Conservatives winning in, I calculated the combined Labour, Liberal and Green percentage of the total vote. If I got this right there are only two seats (Castle Point in Essex and Clacton) where the Conservative vote (just) exceeds the combined progressive vote. More importantly, in all but 12 seats the progressive vote total exceeded the Conservative vote by 10% of the expected vote or more.


Which means if progressive voters are determined to get rid of their Conservative MPs, in all but a handful of seats they could. That would be a Canada 1993 style event, where the Canadian Conservative party, in power in Canada for 9 years, went from 167 seats to just 2. This is made possible, of course, by the right wing vote being split and assuming there is little appetite from Reform voters to vote tactically to defend a Conservative MP.


One of the reasons this result may not happen is that in many of these seats it is very difficult for voters to know which progressive party they should coordinate on. In one of these seats, Waveney Valley, WeThink have the Green party clearly ahead of the other two progressive parties, and there has been some constituency polling backing up the view that they are the main challenger there. In the other seats it is between Labour and the Liberal Democrats. In only three seats are the Liberal Democrats 10 or more percentage points (of the total vote) ahead of Labour. In forty seats Labour are ahead of the Liberal Democrats by 10 or more points, which leaves about 35 seats where WeThink calculate that Labour and the Liberal Democrats are within 9 points of each other.


Of course this uncertainty over who to tactically vote for is increased if you also look at MRP polls by other organisations. This suggests two things. First, it is a great shame that there have not been constituency polls in any of these seats. Second, it shows the costs of lack of formal cooperation between Labour and the Liberal Democrats. The problem in both cases is that it is difficult to predict before the election which the critical seats will be.


Does this matter, as Labour seem likely to win by a landslide? Towards the end of this post I argued that the goal of making the Liberal Democrats the official opposition was well worth striving for. My post next week will amplify this argument, as well as giving some suggestions on these problem seats. To this end, here is a list of seats where I think it is not completely clear whether tactical votes should focus on Labour or the Liberal Democrats, based on looking across MRP polls. Do let me know via social media if I have missed any evidence besides the MRP polls and the advice from tactical voting sites.


List of seats in England and Wales where MRP polls predict the Conservatives may win but differ on whether Labour or the Liberal Democrats are the main challengers to the Conservatives:


Aylesbury, Beaconsfield, Bicester & Woodstock, Brecon, Chelmsford, Chichester, Didcot, East Grinstead & Uckfield, East Hampshire, East Surrey, Ely, Epsom, Exmouth, Fareham, Frome, Hamble Valley, Harpenden & Berkhamsted, Honiton, Maidenhead, Mid Bucks, Mid Sussex, Newton Abbot, North Cotswolds, North Dorset, North East Hampshire, North West Essex, Reigate, Runnymede, Sevenoaks, South Shropshire, St Neots, Stratford-on-Avon, Sussex Weald, Tewkesbury, Tiverton, Torbay, West Worcestershire






Tuesday 25 June 2024

Why UK taxes should be higher

 

Discussion of taxation in the UK is bedevilled by two problems: one familiar and one less obvious. The familiar one is to imagine the level of taxation is separate from the level of public services and welfare. Most voters and much of the media understand the two are connected, which is why the Tory attack on Labour’s ‘tax bombshell’ is so misplaced. A majority want public services to improve, and know that requires higher taxes [1], so all the Conservatives are doing is reminding voters that Labour is more likely of the two parties to improve public services.


Yet this familiar point gets forgotten when we come to the less familiar problem, which is historical comparison. It is now well known that UK taxes as a share of GDP, as measured by the OBR, are currently higher than they have been since 1948 (see Ed Conway here for example). This sounds bad, until you remember the first problem, which is that it is pointless to discuss taxes without also discussing public services and welfare payments. The elephant in the room here is health spending. Below is OECD data on total health spending as a share of GDP in each of the G7 countries, with the UK in red.


Health spending as a share of GDP in the G7


Health spending as a share of GDP has been trending upwards in all the major economies since at least 1970, for familiar reasons like longer life expectancy and advances in what medicine can do. If health spending is mainly paid for through taxes, then unless some other large item of government spending is trending in the opposite direction, taxes are bound to be at historic highs. For some time in the UK there was such an item, defence spending, but once that peace dividend ended there has been nothing to take its place. Of course if health spending is not paid for by taxes citizens have to pay for it by some other means. The top line in the chart above is the US, where spending is so high in part because it is a very inefficient insurance based system.


I have heard journalists in the media say that UK taxes are at record levels countless times, but I have never heard them also say: ‘but of course this reflects the steady increase in health spending as a share of GDP’. The more general point is that talking about tax without discussing what it pays for is just uninformative. [2]


International comparisons of taxation are better, because advanced economies have similar structures to their public sectors. Here is the same chart as above for total tax as a share of GDP (source).


Total tax as a share of GDP in the G7


Note the definition used here is a little different from the national accounts total the OBR uses, so using this measure UK taxes in 2022 are similar as a share of GDP to taxes in the early 80s. France has the highest tax share in 2022, followed by Italy and then Germany. Indeed most major European countries have a higher tax share than the UK, as Ben Chu shows here. The UK share is similar to Canada and Japan, while the US has the lowest tax share. (Will Dunn shows an international comparison for taxes on wage income here.)


Although more informative than historical comparisons, looking at other countries has obvious pitfalls. The US tax share is so low mainly because most US citizens pay via their employers for health cover through insurance companies. It doesn’t mean that US citizens are better off because taxes are low, because their wages are lower so firms can afford to pay for health insurance. If we ignore the US for this reason, then the UK has amongst the lowest tax take among the G7, and also the lower than most major European countries.


While international comparisons of taxes are better than looking at historical trends, they are not ideal because - as the US shows - the structures of the public sectors are not identical. Partly for this reason, the OECD compiles an analysis of total public and private spending on what it calls “social expenditure”, which is mainly health and welfare. I discussed this data in this post. However, even if we restrict ourselves to total public spending on social expenditure, the OECD estimates that the UK has the lowest spending in the G7 (at 22% of GDP), even just below the US (at 23%). France tops the table at 32%, followed by Italy (30%), Germany (27%) with Japan and Canada both on 25%.


This suggests that public spending in the UK is unusually low compared to other major countries, and as a result taxes are unusually low. This should come as no surprise, because public spending excluding health has been cut back sharply since 2010, as this chart from the Resolution Foundation shows.



What international comparisons tell us is that these cuts in public spending have moved the UK to the bottom of the G7 in terms of spending and taxation. UK public services are in crisis not because they are unusually inefficient, but simply because the Conservative government has chosen to spend far too little on them in order to get taxes unusually low compared to other G7 and major European countries. The Conservatives are going to lose this election badly in part because they continue to prioritise tax cuts over improving public services.


Which means UK taxes are too low, and a Labour government is going to have to raise taxes to meet both its pledges and expectations about public spending. (The National Institute comes to similar conclusions here.) The question Rachel Reeves and the Treasury will have to answer is whether they can raise enough using the taxes left after you exclude those they have promised to keep at existing planned levels? If not, will they break these election pledges, or will the public sector remain underfunded and the UK remain under taxed?


Even if Labour can raise enough taxes without breaking its election pledges to get public spending to levels similar to other European countries, this may pose macroeconomic issues. Higher public spending matched by higher taxes on companies or the better off may end up increasing aggregate demand, because higher taxes will not be matched by lower private spending. Together with higher public investment, this will put upward pressure on interest rates. [3]


However this will be a price worth paying, in part because public spending at close to current levels is having a negative impact on economic performance. In particular ever growing NHS waiting lists are restricting labour supply and therefore UK output and incomes. If the Labour government is to be successful in ending a period of very weak growth in living standards, one of the things it will have to do is increase levels of public spending and taxes closer to other major European countries.




[1] To preempt the tweets from MMTers, even if you believe that the level of taxes is just what is required to keep inflation constant, that in turn will depend on the impact of the public sector on overall demand. For this to be roughly neutral over the medium term, what the public sector adds to demand with higher spending it needs to roughly subtract from demand with higher taxes, so spending and taxes will across countries and over time tend to move together.


[2] Discussing the composition of total tax, and how it has changed over time, is more interesting. The Resolution Foundation has an excellent account here.


[3] Whether this means higher interest rates, or just rates coming down more slowly than they otherwise would have done, will of course depend on other influences on aggregate demand.







Tuesday 18 June 2024

Why is this election a disaster for the Conservatives?

 

The title of this post might seem like a daft question, because it has so many plausible answers. As a result, endless articles have been written listing some of these, explaining how Conservative doom was all but inevitable. But, at least from those I have read, one factor is often missing or is underplayed. That factor is bad luck.


I know this isn’t what people want to hear. Anger at this government is off the charts, and as a result it is much more satisfying to place the blame for their current polling position in their own hands. Furthermore, there is little doubt that the governments over the last fourteen years have been off the charts in terms of incompetence and harm inflicted, and my last post detailed just one part of that. They certainly deserve to be where they are because of their own actions.


Unfortunately, none of this ensures defeat at the ballot box. Take 2015 for example. Austerity was a disaster in terms of public service provision, macroeconomic performance and living standards, yet the Conservatives won that election. They had the good luck that real wages started increasing a year before the election, so they could push the ‘hard work paying off’ line. More importantly, the media completely bought the necessity of austerity, so voters were badly informed about how stupid and damaging it was.


In 2019, when Johnson won a large majority in parliament, few people predicted it would fall apart so quickly and end so badly, even if we thought he deserved such a fall. Indeed as many people wrote in 2019 about how the Conservatives had put together a powerful electoral coalition as are writing about the inevitability of defeat today, and to be plausible the latter needs to account for the former. 


That includes myself. In March 2021 I wrote a post entitled “As things stand, the chances of defeating Johnson at the next election are minuscule”. To be fair to my former self, I did also write “as a former Conservative PM is said to have said, events, dear boy, events”. Those events are what this post is about.


It is certainly true that the longer a party stays in power the more voters look for change, but this forgets how much at first Johnson successfully portrayed his regime as something very different from the Conservative administrations that had gone before. Brexit wasn’t the only sense in which this was true. Johnson made a point of saying that austerity had come to an end, and he did put more money than was previously planned into the NHS, education and hiring more police. He needed to spend more to keep his new coalition together, because although the red wall voters who voted Conservative were socially conservative and wanted Brexit done, many also wanted to see ‘levelling up’ and better public services. How much he believed or indeed understood that strategy, and how much came from those initially advising him, is an interesting point that I will come back to later.


It is also tempting to say that the Conservatives today are suffering from the project that brought Johnson to power: Brexit. However the economic costs of Brexit have turned out to be the same order of magnitude as economists predicted they would be before the referendum vote, but few went on to suggest that the government that enacted Brext would be automatically doomed to defeat within five years. The reason is simple. The costs of Brexit are slow to emerge. If economic growth had otherwise been relatively good, these costs could easily have been explained away by a government with most of the press on its side. If they could do this with austerity they could do it with Brexit.


Johnson’s project came apart because of the pandemic. The pandemic itself didn’t lose him many votes, even though it should have. I have written many posts about why his decisions during the pandemic were terrible and directly led to tens of thousands of deaths, but his polling position in mid-2021 was pretty strong. Once again, incompetence in government does not necessarily lead to electoral loss, particularly when there is little criticism in the media.


The pandemic was bad luck for Johnson for three reasons. The first and most obvious was it exposed the government’s arrogance in believing rules did not apply to them. Holding illegal parties in No.10 is the obvious example, but the corruption over PPE contracts is another. I suggested here that this problem is endemic to a populist plutocratic right wing party, but it was not a problem that would necessarily become evident to voters so quickly without the particular circumstances of the pandemic.


The second reason the pandemic was bad luck was financial. If the pandemic hadn’t happened, and growth had instead continued at its earlier level, it is possible that Johnson could have put enough money towards levelling up and public services to keep his red wall voters happy, without the need to raise taxes in a way that upset his MPs and more traditional base. That might have required breaking fiscal rules and borrowing more, but this wouldn’t have been the first Conservative government to do so and yet continue to successfully claim that they were the party of fiscal responsibility. After the pandemic this was much more difficult.


The third reason the pandemic was bad luck was because of immigration. The pandemic put a steady increase in labour force participation into reverse, leading to labour shortages as the economy recovered and therefore record immigration. This was bad luck in electoral terms because it provided ammunition to Reform and Farage, who could with some justification claim that Brexit had promised less rather than more immigration. However some of this bad luck was self-inflicted, because Johnson and Sunak failed to provide the NHS with sufficient resources to clear the backlog of cases created by the pandemic.


If the pandemic was the government’s first piece of bad luck, the cost of living crisis was the second. [1] As we saw after the Global Financial Crisis, governments lose support among voters after economic crises even if those crises are global in origin. The 2019-24 period is unique in recent history in seeing an actual decline in living standards. Only a small part of that fall can be blamed on government decisions. The cost of living crisis meant the economy became voters main concern, which gave issues like asylum and culture wars more generally less traction. [2]


My argument is not that the Conservatives current dire electoral position is purely down to bad luck. It is slightly more subtle than that. What the bad luck of the pandemic and cost of living crisis have done is reveal the true nature of this administration, which without that bad luck might have remained hidden to many voters. So just as the pandemic revealed Johnson’s true character via partygate and PPE corruption, so the cost of living crisis highlighted the costs of Brexit and austerity, which under more favourable circumstances might have gone unnoticed by many.


As I stressed at the beginning, none of this bad luck is meant to detract from the fact that this 14 year Conservative government deserves to be where it currently is in the opinion polls. However I think it does help explain why the strategy of 2019 which seemed so successful in electoral terms so quickly turned into a disaster. Why is this important? It suggests the strategy of combining socially conservative policies with moving to the left on economic policy remains viable and capable of winning elections in its own right . The post-2019 analysis that suggested the Conservatives had created a powerful coalition of voters was not wrong, although any implication that this strategy was bound to triumph at the next election obviously was.


The problem the Conservative party (many MPs, its members, donors and press barons) has always had is that they have never really accepted the economic side of that 2019 strategy. [3] Once Johnson’s position became weak, he and his then Chancellor was forced to pander to the desire for tax cuts, and with Truss and Sunak the party reverted to a very right wing economic agenda. As a result the Conservative party itself abandoned the strategy that had been so successful in attracting red wall voters, and with a Labour opposition determined to win these voters back and with voters focused on economic issues its fate was sealed.


As I have suggested before, there is little chance that the Conservative party in opposition will revive the 2019 strategy any time soon. Other things being equal, that is good news for Labour. But it is not hard to see how a Labour government will eventually fall to a Conservative party that is well away from the centre in both economic and social terms. Part of the reason will be that a Labour government will be seen to be too illiberal for its natural supporters but too liberal to more socially conservative voters. Another factor will be a (probable) failure to alter the structural factors that work against liberal parties in the UK, including FPTP and the right wing press. But at some point a key factor may also be just bad luck.


[1] Part but by no means all of the cost of living crisis was a direct result of the pandemic.


[2] The Liability Driven Investment strategy of pension funds that was key to the third and final stage of the Truss fiscal event disaster could be classed as bad luck, but I think that would be stretching things. After partygate and with the cost of living crisis, the party faithful decided to elect a Prime Minister who had no interest in retaining Johnson’s electoral coalition, but instead reverted to promoting tax cuts rather than public services. Even after Truss fell, Sunak felt he had to do the same. The electoral gains Johnson had made were thrown away.


[3] This is why many in the party seem to believe that as long as their policy stance is illiberal and authoritarian enough, that will be all that is needed to secure their 2019 coalition. They fail to see the importance of moving left on aspects of economic policy because they don’t want to see it. In addition by becoming more illiberal and authoritarian they are unable to attack insurgents from further right (i.e. Farage), and instead legitimise that threat as a plausible place for social conservatives unhappy with the government to place their votes.

Tuesday 11 June 2024

The macroeconomic cost of Conservative government


During this election period there has been plenty of analysis that looks at how the economy has performed since 2010 (the IFS here for example). All show the UK performing very badly indeed. But how much is that down to macroeconomic policy mistakes, and how much is due to factors outside the government’s control? I will attempt to answer that question in this post, and try to be as conservative as possible.


I will begin with austerity, because it’s a calculation I have already done. The table below is taken from this post.



The first row comes from an analysis done by the OBR (Chart E on page 27). The main negative impact on growth came in the first two years as public investment was cut back sharply, but continuing fiscal consolidation in later years reduced aggregate demand by significant amounts. The key issue is how persistent these impacts are. To see what persistence means in this context, consider a hypothetical example.


Suppose cuts in public investment in 2010 reduce GDP in that year by 1%. Public investment stays at this lower level in 2011. Other things being equal, does GDP stay 1% lower in 2011, or do other components of demand rise to take the place of some of that lower public investment? In normal circumstances the answer to that question would be the latter, because central banks would react to lower GDP by cutting interest rates which would stimulate private spending. However throughout the period examined above interest rates were at their lower bound, so this couldn’t happen. But other factors (e.g. Quantitative Easing) may have crowded in private demand to some extent.


In this calculation I assumed that the impact of fiscal consolidation decayed by a factor of 0.8 each year. The third row therefore gives the impact of austerity on the level of GDP in each year over this period. For example, the OBR estimate there was no fiscal consolidation in 2017/18, so the impact of past austerity on the level of GDP in that year is to lower GDP by 2.1% x 0.8=1.7%. In theory austerity would have had some impact after 2017/18, but interest rates started rising at the end of 2017, suggesting that the Bank thought there was no longer much deficient demand.


However it is also likely that the earlier prolonged period of deficient demand had an impact on how much the UK economy can supply. I examined this here. The argument is that productivity improving investment was lost during the austerity period, and that had a longer lasting impact on UK productivity and the stock of capital. The problem here is attaching numbers to this idea. Empirical estimates can sometimes be very large (for example here), and the IMF study I looked at here is also consistent with austerity (fiscal consolidation in a recession) having significant long term impacts on GDP. But I want these estimates to be conservative, so I will assume that austerity during the 2010-17 period reduced GDP permanently by 1.5%.


The OBR estimate that Brexit will end up reducing UK GDP by 4%. However I need more than just a long run impact. The following is based on a NIESR study by Kaya et al, and in particular their Table TF4. (I’ve done some extrapolation for the initial years.)


GDP impact of Brexit

GDP

2016

2017

2018

2019

2020

2021

2022

2023

2024

%

-0.4

-0.6

-0.7

-0.8

-0.9

-1.2

-1.8

-2.5

-3.0


Again I suspect this is quite a conservative estimate for the immediate impact of Brexit, even though their long run impact (at -5.7% for 2035) is greater than the OBR’s number.


We also need to add something for the pandemic. The UK was hit in 2020 comparatively hard, both in terms of deaths and lost GDP, even though other countries like Italy were hit earlier. Not only did Johnson’s government waste the early months of 2020 with the idea of ‘herd immunity’, but it also waited far too long in introducing lockdowns, which meant when those lockdowns inevitably came they were more severe and prolonged, giving a more sustained hit to GDP. UK GDP fell by over 10% in 2020, compared to just over 6% in the Euro area. I think it is fair to class this as an economic mistake, because the reason the government gave for delaying lockdowns was to protect the economy, whereas in reality they were doing the opposite.


The third and last lockdown extended into 2021. In addition, the failure of the government to give the NHS the resources to bring waiting lists down after the pandemic, coupled with the steady squeeze in health funding that preceded it, began to have a clear macroeconomic impact during the 2020s. While labour force participation returned to its pre-pandemic trend in most other countries, it did not in the UK, and a significant part of that was due to poor health.




The table below collects these three elements together.


A conservative estimate of the economic cost of Conservative government, % GDP


10

11

12

13

14

15

16

17

18

19

20

21

22

23

24

Austerity

0.8

2.0

2.2

2.5

2.3

2.3

2.1

1.7

1.5

1.5

1.5

1.5

1.5

1.5

1.5

Brexit







0.4

0.6

0.7

0.8

0.9

1.2

1.8

2.5

3.0

Covid











5.0

1.0

0.5

0.5

0.5

Total

0.8

2.0

2.2

2.5

2.3

2.3

2.5

2.3

2.2

2.3

7.4

3.7

3.8

4.5

5.0


From 2011 until 2019 households were over 2% poorer mainly as a result of austerity, but with additions from Brexit after the referendum. By 2024 that had increased to being 5% poorer, mainly because of Brexit. That means that the average household was losing over £4,000 worth of resources (public and private consumption plus investment [1]) in 2024 as a direct result of government decisions. The Conservatives like to accumulate these things, so adding up the losses over all fifteen years comes to (in today’s prices) a massive £35,000 loss of resources for the average household.


Is there any way of comparing these numbers with the UK's actual performance, either compared to history or other countries. Comparing GDP per capita growth to a trend growth line based on post-war data would give a much bigger gap, but that comparison is misleading because there were signs UK growth was slowing down before the financial crisis, and this fits with a gradual reduction in underlying growth in other countries. Unfortunately all the major economies beside China undertook austerity from 2010, so international comparison are little help here.


However, John Springford has compared growth in the UK since 2016 with a doppelgänger based on other countries, and he estimates the UK has grown by 5% less than these other countries suggest it should. If we combine my estimate for 2024 for Brexit and post-pandemic health we get 3.5%, which given the uncertainties involved is consistent with Springford's analysis. 

 

A UK government that enacts policies that reduce GDP by around 2% during its time in office is pretty unusual. To reduce it by 5% is extraordinary, but then since WWII we haven’t had a government that has cut public spending in a recession when interest rates were stuck near zero, or one that deliberately raised trade barriers with our largest market.


The way these numbers are constructed it looks like the consequences of three bad mistakes, but I think it goes deeper than that. What connects them all is crass economic incompetence. In each case expertise was ignored because it didn’t fit in with ideological or political objectives. As I have sometimes said, mistakes made by politicians because they have followed the expert consensus are understandable and to some extent forgivable, but mistakes made because politicians ignore the expert consensus have to be owned by those politicians.


This propensity of Conservative governments to ignore the economic consensus and as a result make very costly mistakes is not unique to this period, as my recent discussion of monetarism showed. What is really alarming is the failure to learn from these mistakes, or even recognise them as mistakes. This isn’t just the natural reluctance of politicians to admit error, but goes far deeper. The Conservatives have created through the right wing press, pressure on the BBC, think tanks and rich donors an alternative reality for themselves, where disasters are seen as triumphs never to be questioned. Which is why in this election they are plugging tax cuts despite crippled public services, refusing to recognise the costs of Brexit and where even the delayed pandemic lockdowns are seen as a mistake.


As a result, as things stand any future Conservative government will be likely to continue to make serious economic policy errors that cost most UK households a substantial amount in lost income and resources.


[1] The idea of household resources (GDP divided by the number of households) is less familiar than, say, household income, but in my view it is a better measure of underlying welfare. It includes, for example, public services like the NHS, which household income does not. It is of course just the household equivalent of GDP per capita.