The polls are now showing levels of support that would result in a hung parliament that would, given the maths, almost certainly produce another Labour government. However, expectations continue to be that Labour will lose the next election. As I type the bookies still have the Conservatives as the heavy odds-on favourite, betting spreads have a Tory majority, the last time the PoliticsHome panel of MPs, political journalists and so on were polled 40-odd percent still thought there would be a Conservative majority, even left leaning pundits like Michael White in the Guardian are saying they still don’t expect Labour to win. Why?

I can’t claim to know the mind of punters or pundits, they may all simply be in denial, but I suspect the reason is because they expect the economic situation to eventually sap the government’s support. Unless they expect a substantial recovery in the economic situation next year, they are probably right to do so: let’s look at the figures.

The simplest thing we can say is that people are very pessimistic. Asked if the economy is getting better or worse people are overwhelmingly negative – in MORI’s lastest poll 66% expected the economy to get worse next year. This is, however, a bit of a statement of the bleeding obvious. To get any thing useful we need to look a bit beyond that, and that reveals two interesting gaps between expectations and what is likely to happen.

Firstly, there is a sharp contrast between people’s expectations of their own families finances and that of the country as a whole. The difference is sharpest in Populus’s questions – the net score for expections of the economy as a whole is minus 35, for “me and my family” it’s plus 7 (51% think they personally will do well in the next 12 months, 44% badly). In TNS’s regular surveys of consumer confidence for Nationwide the net score for the public’s expectation of the economy in 6 months is minus 23, but for people’s own household it is exactly neutral (16% think they’d be doing better, 16% worse).

Some people of course won’t suffer, mathematically its theoretically even possible that most people won’t, if a few big losers outweigh many small winners. Realistically though we have a gap between expectations and reality here – people think the economy is headed for disaster, but they and their family will manage to buck the trend. While some will be right, the chances are an awful lot of them won’t be. Reality check one.

The second is the upturn in economic optimism. While all polls show people very pessimistic about the economy, almost all the trackers of public confidence in the economy show it heading upwards since the summer. Specifically, many show a big spike around the time of the bank rescue plan (see, for example, MORI at the end of this pdf, or this TNS data).

This also, of course, co-incides with the Labour government’s recovery in the polls. This isn’t as obvious as perhaps it sounds, when polls have asked specifically about whether the PBR, say, will improve the situation very, very few say it will make a big difference. The recovery in economic confidence though tells the underlying truth; people may not be able to point at a specific policy and say it will solve things, but collectively the government’s actions have served to convince some people that things are getting better. It suggests that Labour have recovered in the polls not just because people have seen Gordon Brown looking more capable, purposeful and at ease with himself, the Labour party more united, or have looked to experience in a crisis. Support for Labour has increased because people think the action they’ve taken is actually working.

Here then, is the problem. If the government’s increased popularity is due to people thinking their policies will work, what happens if they don’t? And on what criteria will that judgement be made?

If the criteria for success was avoiding a recession or major job losses this would be an easy exercise with a very bad answer for Labour. Thankfully for Gordon Brown, that’s not the yardstick he’ll be judged by. We know the public expect a recession, we need to judge how deep their expectations are – for that we need to look at questions asking what people think about the economy in the future. Going back to the TNS data for Nationwide, asked about the current economic situation 76% think it is bad, 15% normal and 9% good – this has been on a steady downwards trend since 2007. When TNS ask how people think the economy will be in 6 months time 45% think it will be worse, 30% the same, 22% better – significantly up from a few months previously. In other words, a majority of people now think we’ve hit the bottom and a significant minority of them think we’ll be on the up in 6 months time. In Nov 08 Populus too found a significant chunk of people taking a more positive view: 31% of people told Populus they thought the economy would do well in the next year, up from 22% in July. MORI’s last figures are less optimistic, but the optimists are there – 18% think things will get better, 14% the same, so almost a third think we’ve reach the bottom (again, significantly higher than in the Summer).

I’m not an economist, I’ve no particular way of knowing what will happen to the economy next year, but I am not seeing any predictions that next year will be anything but horrific economically. If that does happen the chances are – though it is not a foregone conclusion – that this will push economic confidence down again as reality hits home. The thing that will do it is not the raw economic figures, but experiences of friends and family, and the stories that make it real, things like the immentient closure of Woolies and the job losses that will entail, and the further companies and employers that we can expect to go to the wall next year if the predictions are correct.

Will this necessarily be bad for the government though, surely the recession has been good for Labour so far? There is a perception that, whereas governments normally lose popularity when the economy goes horribly wrong, Gordon Brown and Labour have bucked the trend. That perception is wrong. Confidence in the economy started going after the run on Northern Rock – roughly the same point that Labour’s lead vanished and the Conservatives moved ahead. Labour’s position completely tanked in the months after the budget, at the same time as economic confidence really began to fall through the floor. The recent recovery in Labour’s position in the polls dates from the bank rescue in October 2008, which has also seen a recovery in economic confidence. The graph below shows the public’s net expectations for the economy in 6 months time, from TNS’s monthly survey for Nationwide (in blue), compared to Labour’s average lead in the polls over the last 18 months or so (in red).

graph

It speaks pretty much for itself. Brown’s government’s fortunes are not defying gravity, they are tied to perceptions of the economy. Since the bank rescue plan significant numbers of people have become more optimistic about the economy and Labour’s fortunes have gone hand in hand with that recovery in economic optimism. If that falters I suspect Labour’s support might go the same way, and at the moment all the predicts are that it will. That is the reason to think that the forcecast for Labour isn’t as rosy as the actual voting intention figures we are seeing at the moment would suggest.

The worst thing for Brown is that even if the economy actually does do well, the economic pundits are all proved wrong and the British economy bounces back strongly before any expects, he still isn’t out of the woods. At that point, as Danny Finkelstein wrote earlier this month, the public suddenly have much less reason to be risk adverse and the “experience vs novice at a time of crisis” argument ceases to work. It’s worth remembering that while polls now universally show that Gordon Brown is more trusted than David Cameron to deal with the present crisis, Populus still have Cameron leading as best to “lead Britain forward after the next general election”. Similarly, YouGov show Labour miles ahead on dealing with the economy in the present crisis, but the Conservatives ahead on the economy per se.

So, while the current polls are good for Labour, at least in the sense they would probably end up the largest party if there really was an election tomorrow, the problems ahead are daunting. Obviously anything can happen, but the chances of a Labour victory are probably lower than the raw voting intention scores would suggest – hence the pundits and punters opinions I started the article with. However, even if the economy does drag Labour’s support down again, it doesn’t follow its going to happen straight away, or indeed that Labour won’t rise further before economic reality hits home. If Labour do get closer to the Conservatives in the polls (or indeed overtake them) in the new year, then Gordon Brown really should call an election there and then. Under the circumstances, he could win it.


81 Responses to “The abyss ahead of Gordon Brown…”

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  1. the reason the pundits are right is labour do not have a message to run an election with.

    tax,no tax,welfare reform?

    they have failed on everything except increasing the benefits to their voters at the expense of hard working famlies.

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  2. An interesting analysis, though dangerous to conclude from the one graph that the Labour poll rating is a function of the economic expectations. As others have pointed out, they may both have a common causal factor.

    My own, wholly unscientific and unproven view is that we are seeing a hardening of the core Labour vote in the light of the high rate tax promise and very effective message re. the ‘do nothing’ Tories who will abandon those who suffer like they did in the 80s. But I believe this has now hit a plateau at around 35%.

    This recession is going to hit very hard those who flocked to Blair in 97. The analysis in the Evening Standard last week showed that unemployment has risen by 1% in the Labour heartlands but by 107% in Crawley.

    The polarisation between those who suffer (middle management, private sector, home owning, money purchase pension holding) and those who prosper (middle management, public sector, home owning, final salary pension holding) is going to be dramatic.

    So what, some will say, those same people didn’t care when the miners and the steelworkers were being thrown on the scrapheap. Well, no they didn’t, but they will be very, very angry come the next election and will be looking for a Thatcherite scaling back of the public sector in order to pay of debt and, ultimately, reduce taxes.

    Will the timing of the election matter? Probably not – unless, and surely this couldn’t be the case, could it – that Brown would try to manipulate economic policies to maximise the election probability. Surely he wouldn’t have held back on unfreezing lending to the private sector in order to accelerate the recession and then create a perceived economic bounce next spring. Would he?

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  3. Mike,

    I think you should stop digging, now you are eligible for Australian citizenship

    Peter.

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  4. Phil – how will a strengthening next year actually be bad for Labour.Will they not say the the Conservatives have got the economy wrong again as they would say it would be worse?

    Would Brown not be able to wear his Saviour of the World suit again if he defies all predictions and it does happen.

    If anything that will be the only thing that will help them win if he goes for an election right at the end.

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  5. Sir John Gieve , Deputy Director of BoE tells the BBC that the Bank was aware that a bubble was developing in the housing market, as well as in the price of other assets, and that it was being fuelled by “crazy borrowing”.

    However, it failed to comprehend how serious the problem really was and what the implications would be for the rest of the economy.

    Sir John, who is a member of the Bank’s rate-setting Monetary Policy Committee, also criticised the Bank’s policy of relying too heavily on interest rates to control conditions in the banking sector, saying that they were a “blunt instrument”.

    So now we know-you couldn’t make it up could you?

    “started in America”?..pull the other one Gordon.

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  6. Yes Colin

    Whilst giving the BOE control over interest rates has overall been a good thing it has become apparent that their brief is too narrow.

    Because their brief is to target inflation only this resulted in interest rates being kept too high for too long. Perhaps some of the worst of the recession we are going to see could have been avoided if the BOE had cut interest rates much sooner in the cycle. Of course they couldn’t do this because they were worried about inflation.

    Perhaps the next Government , be it labour or the tories has learnt something from this and will slightly alter the brief of the BOE MPC so it is looking at more than just inflation.

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  7. Well KTL-you make it sound like a small technical problem.

    The results are certainly far from small.

    I wait to see Panorama this evening with much anticipation-but my impression is that Gieve says on the programme that BoE did not believe that the asset bubble was connected to the “real economy” or words to that effect.

    He uses the words “crazy borrowing” for God’s sake!

    I get the distinct impression that these people live in a bubble themselves-academic & remote . We know from the new head of FSA that Brown’s new “regulator” was staffed by inexperienced box tickers-indeed under-resourced with them.

    What happened to common sense-yes and prudence?

    I mean how many ordinary -reasonably prudent people could have told the well paid Mr. Gieve that lending 125% of value , and self certification were not just “crazy”-but bound to end in tears?

    My own impression is that -far from reducing interest rates sooner-BoE should have kept them higher for longer to curb the “crazy borrowing”.This might have smoothed the downward curve to reality.

    Of course industry would have screamed that “growth” was being curtailed-but it sure as hell has been curtailed now with an almighty bang.

    The Tories idea for an independent agency to call time on borrowing bubbles is now seen to be eminently sensible-indeed imperative.

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  8. Hi Colin,

    Well of course there are arguments both ways but I think I’m right in saying that until recently rates in the UK had been at least 0.5- 1% higher in the UK than in Europe. If the BOE had kept interest rates say 2% higher in the UK than in Europe wouldn’t we all have been screaming and wouldn’t it have put UK business at a competitive disadvantage ?

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  9. Yes KTL -some would have been screaming ” don’t stop the gravy train”.

    Those same people are now screaming “the gravy train has stopped”-and some of them want taxpayers & savers to keep ladling them with gravy.

    Incidentally , on Panorama Vince Cable reminded us that Gordon Brown told VC, when the latter warned him of escalating debt in 2003/4, that VC was “talking down the economy” !

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  10. Anthony,

    I know the limits of the Scottish samples and that Labour has been historically been a Labour stronghold, but It’s interesting that Labour have recovered in Scotland at a time when economic confidence has been generally higher north of the border than in the south.

    Peter.

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  11. Anthony,

    Excellent analysis. It will be interesting to see how this pans out over the next few months, as the economy – in particular unemployment – continues to deteriorate.

    The contrast between people’s expectations of the economy in general and their perception of their own circumstance probably has more to do with lack of awareness – or even denial – of the risks to their own position than great confidence that they will buck teh trend – though there may be an element of that too.

    Out of interest, there were some such questions in teh recent You-Gov poll, and I was one of those who predicted that my own position would “stay the same” as against the economy as a whole deteriorating – mainly because I work for a Japanese company with a reputation for retaining its staff. Less than a week later I have to revise that assumption – but it is still the case that unless (or until ?) I am actually made redundant, I can claim that my own situation should remain the same – or even a little better thanks to lower interest rates – whilst knowing that the economy as a whole will be getting worse.

    It is when jobs start being cut in your own workplace that the fear of unemployment becomes real rather than theoretical. Sadly, for large numbers of people across the UK, that realisation is going to dawn a bit suddenly in 2009. The city is rife with rumours of which household names are going to fall in 2009. No one knows for sure, but with £8bn of corporate debt maturing in 2009, and few bank lines open to refinance it, casualties there will be.

    The retail sector is definitely one to watch – especially when shoppers discover they have maxed out their credit cards and they can’t get any more credit. That could happen as soon as late January. Perhaps it is no surprise that Mandy is trying to lean on the credit card companies – but why should they create more sub-prime loans just to keep a consumer led boom going ? Do we really want to encourage people to dig themselves ever deeper into debt ?

    Final point – we have already seen Corporation tax receipts fall significantly so far this year. These are the taxes paid on a rolling basis by large companies. December is when small companies file their returns, and it should not be a surprise if many of them report a loss rather than send in a cheque.

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  12. Since my posting above on the 20th, we’ve now seen the Comres poll and also here is the latest ‘name’ having a go at the PBR / GB’s tactics.

    This time an IMF economist.

    The case of ‘everyone in the world vs the Tories’ that was being used by the PM in PMQ’s etc is slowly unravelling.

    http://news.bbc.co.uk/1/hi/business/7797478.stm

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  13. Can anyone explain to me why Conservative governments can get re-elected in the teeth of severe economic problems (1983,1992 and to a lesser extent 1987) and according to this site and its contributors a Labour government cannot? Seems to me that most of the media and commentariat still cling to the narrative which they established when Brown became PM – he must not be allowed to win the next election. No wonder these polls show such economic negativity as this pessimism is pumped into the electorate’s psyche day after day. Any historic comparisons on this Anthony?

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  14. My explanation in shorthand is:

    83 – Toast but for Falklands, Michael Foot / Derek Hatton

    92 – Sun turn the light bulb off, ‘we’re alright”

    87 – Election in June, Crash was in October.

    09/10- Financial meltdown + 10-year chancellor/PM. 2x national debt projected within 5 years on a tad optimistic growth numbers Anyone else on-toxic / ‘change’

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  15. ‘non toxic’

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  16. Alan W,

    As my namesake has already commented, there are obvious explanations for 1983 (Falklands / Foot + a divided opposition) and 1987 (the crash came later).

    In 1992, Major beat all the forecasts for a Labour victory – mainly because the economy itself was already starting to recover, the main constraint being the ERM. Since the principle opposition (Kinnock, Smith, Brown) were clamouring for Britain to join EMU, and eventually the Euro, their central economic policy would have made matters worse – as proven five months later.

    By your logic we could equally ask: why did Major lose so badly in 1997 when the economy was clearly growing strongly and the public finances were in good shape ?

    Looking further back, there were clear economic problems which led to changes of government in 1970 (devaluation), 1974 (miners strike) and 1979 (severe inflation, strikes and IMF rescue).

    The sad reality is that Labour governments have a worse track record on the economy and public finances than Conservative ones – despite Brown’s ridiculous claims about abolishing Boom and Bust and saving the world.

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  17. Paraphrasing the Sun (I think):-

    Brown abolished Boom& Bust, and substituted S**t or Bust.

    Ah well-onward toward the Abyss.

    Happy Christmas everyone!

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  18. If the Sun said that, a remarkably apposite comment for them.

    I do wonder if the whole Keynesian argument forgets one other concept in economics 101, the crowding out effect and long term risks to a balanced economy.

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  19. The economic records of past governments are far more mixed than you suggest, Paul H-J.My central point remains that it is the prism through which events are reported in the media that influence polls. Take your example of 1997 – the prism was Europe and the differences within the Conservative party on the issue.Hence the defeat against an improving economy. Back to the present and the polls. Look at the difference between how an individual says they experience the health service/education/their own financial well-being and how those same individuals perceive the health service/education/economy as a whole which is far more negative. The negative prism in most media must explain this to a large extent which takes me back to my initial charge that our so-called ‘opinion formers’ want Brown out. Another point of concern to me is the re-appearance of a significant geographical divide in voting intention. But this is for another time. Have a good festive period everyone.

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  20. Alan W,

    I don’t recall suggesting there was any uniformity in the records of past governments. In my view, the economic record of government in general is certainly mixed: between bad and awful ! Good only happens when governments do the thing they are least capable of – namely not interefering.

    You may be right about the role of the media – though while the BeeB may not be greatly enamoured of Brown, they are hardly clamouring for the opposition to replace him, However, I would have to take issue you with your perception that Tory division over Europe – while real – was what lost he 1997 election – that is certainly not my recollection of either the campaign itself or the years beforehand when it was clear from mid 1993 that the next election was lost. It’s also not how the Labour party presented it (especially as they had their own internal divisions on the subject – but kept carefully under wraps) Frankly, I think Joe Public doesn’t give a damn about Europe so long as he can enjoy his cheap holidays there. 1997 was about something entirely different.

    With regard to the difference between how people see the national picture vs their individual situation, could it be that a part of this is that, on the national stage, they feel helpless before a mighty state, yet still feel some semblance of control over their own affairs, and hence can afford to be a bit more confident ?

    Put another way: I am optimistic that I can manage my own finances and exercise sensible choices over the services I need to use, but I cannot trust a bureaucratic and wasteful governmnt to do the same.

    Best wishes for a prosperous new year !

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  21. Mark M:

    “To me, it feels like a returning to home of Labour supporters who felt that their party wasn’t doing, and wasn’t able to do, the best for the country and so switched to the conservatives. Recent developments have convinced these floating voters that they were wrong to move away from their traditional party.

    I would be surprised, although I don’t have the figures, if Labour’s policies in the economic crisis have convinced (many) traditional Tory supporters to vote Labour. ”

    I think your party bias shows. Labour supporters are fickle, Tory supporters are loyal.

    You may be right about the elderly core of the Conservative vote, but there is an equally loyal traditional Labour vote in some parts of the country.

    The fact is that the party loyalty of class-divided 1950′s Britain has gone, and the two parties of governance no longer own the vote of “our sort of people” and elections are not determined by the effectiveness of the motivation of “our” voters to go out and vote.

    There is no longer an important correlation between employment/housing/education/leisure interests and party loyalty.

    Parties now have to earn the vote more than before.
    Middle class people are not inhibited from voting Labour. Many who are in occupations which do not require tertiary level education, and/or who live in former council houses do not identify with the working class Labour supporter of their parents generation.

    Thus the Labour voters you refer to were never committed to any party. Some have a very shallow understanding of what their favoured party stands for, are swayed by the press, and support the strong leader: Thatcher, Blair, but not the wimp Major. No political analysis there.

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  22. Simon Johnston

    “they have failed on everything except increasing the benefits to their voters at the expense of hard working famlies.”

    Your party bias is showing. The benefit scroungers don’t vote, and “hard working families” gives it away.

    Could it be that the Conservative party sometimes does things in government that helps their (financial) supporters in business? Surely not. They are too public spirited to do that. Only Labour buys votes.

    We don’t need people who work hard. It’s not smart to work hard, but its hard to work smart. GB uses the HWF cliche too because he knows a lot of them are the floating group referred to in my previous post.

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  23. Simon P:

    Wishful thinking I’m afraid.

    “those who suffer (middle management, private sector ………will be very, very angry come the next election and will be looking for a Thatcherite scaling back of the public sector.

    So they will, but what’s new? Didn’t these people support the Conservatives before? Havn’t they always wanted that?

    I’d rather bet on the proposition that you are one yourself than bet on the outcome of the election. Ask yourself: “Did I vote for Labour last time round? If the answer is “Yes” they you can’t withdraw your support no matter how angry you get.

    If I am right and these people mostly voted Conservative last time, it won’t make any difference at all. It’s the urban English C2′s that voted for Thatcher then Blair that may switch again or not vote and so determine the result.

    Do they think GB is a “strong” leader? Do they think that DC is a toff and not a serious statesman? Can GB do a bit of gravitas while showing that he can relate to the football/soaps/celebrity culture of the urban English C2? Can either of them get on Come Dancing before the election?

    These are the questions that matter.

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  24. If the answer is “Yes”

    It should be “No” of course.

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  25. I wonder how many people will vote for David Cameron at the next GE just because they don’t like Gordon Brown.

    I believe the next GE will be a battle of attrition, full of negative campaigning from both parties, and the least battered party will come out victorious.

    All we hear from David Cameron is how he wouldn’t have done what Labour had done; I’m yet to hear what he would have done. I’m not talking about soundbites like savings tax incentives, I am referring to the economic meltdown.

    On the other hand, if I hear from GB that the conservatives are a “do nothing party” one more time I think I’m going to be sick.

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