It’s living standards, stupid. Why a rising tide won't lift the Conservative boat

When Cameron derides Miliband for not wanting to talking about the economy, he forgets that, for most voters, living standards are the economy.

When challenged to justify their belief that they can win the next general election, the Tories espouse the view first expressed by Bill Clinton’s campaign strategist James Carville in 1992: “It’s the economy, stupid.” With growth forecast to be as high as 3 per cent next year, they are confident that a path to victory is opening up.

To Labour’s criticism that this is a “recovery for the few, not the many”, with living standards falling even as GDP rises, they urge patience. In the argot of the Treasury, wages are a “lagging indicator” and higher output will soon translate into higher salaries. As George Osborne remarked after the publication of the most recent GDP figures, “If Britain is growing then the finances of Britain’s families will start to grow.” The unspoken assumption is that so, too, will the Tories’ poll ratings.

For Labour, this optimistic analysis proves that the Conservatives have failed to grasp that the crisis is not merely cyclical but structural. The link between higher growth and higher wages has been severed and will not be easily repaired. Ed Miliband’s team points to the pre-crash period, when incomes for millions of low-and middle-income earners stagnated even in times of strong growth, as evidence that the market can no longer be relied upon to deliver for the majority. In an economy as unequal as Britain’s, any gains quickly flow to the top. If there is wage growth before the election, it will be of the unbalanced kind seen in April, when high earners collected their deferred bonuses in order to benefit from the reduction in the top rate of tax (the one month since May 2010 in which real incomes rose).

After successfully shifting the debate away from the deficit and towards living standards, Labour believes that the Tories are now stranded in enemy territory. The more they trumpet their success in reducing government borrowing and reviving growth, the more conspicuous their failure to deliver on wages becomes. Miliband’s team was stunned by David Cameron’s recent assertion at Prime Minister’s Questions that the Labour leader only wanted to talk about the “cost of living” because “he does not have an economic policy any more”. As one senior strategist told me, “For any normal voter, living standards are the economy.”

In a tacit acknowledgement of this, the Conservatives are finalising their response to Miliband’s proposed energy price freeze. George Osborne is poised to use his Autumn Statement on 4 December to announce the removal of some green charges from consumers’ bills and to launch a new assault on Miliband’s record as energy secretary. But Labour is unfazed by this manoeuvre, arguing that its policy has a “longer shelf life”. By the time of the election, after further price increases, it is Miliband’s freeze that will still look like the most attractive offer.

Without a good story to tell on living standards, the Conservatives will be forced to run on their macroeconomic record in 2015. Growth is likely to pass its pre-recession peak at some point next year and Osborne may come close to eliminating the bulk of the deficit by the time of the election. But this narrative of success risks undermining their warning that the economy is too fragile for voters to hand Ed Miliband and Ed Balls the keys to No 10. As one Labour figure put it to me, “If they’re saying that the war’s been won, then people might start asking, ‘How do we win the peace?’” The same dynamic that led voters to prefer the modest Clement Attlee to Winston Churchill in 1945 could lead them to favour Miliband over Cameron 70 years later.

Before the return of growth, the Conservatives drew comfort from the Prime Minister’s superior personal ratings. They have long believed that by framing the election as a presidential contest – do you want Cameron or Miliband as your prime minister? – they can overturn Labour’s lead. Yet history shows that a well-liked (or, more accurately, less disliked) leader is no guarantee of electoral success. In the final poll before the 1979 election, Jim Callaghan enjoyed a 19-point lead over Margaret Thatcher as “the best prime minister” but the Tories still won a majority of 44 seats. Similarly, in the 1970 election, Harold Wilson's 23-point lead over Ted Heath failed to prevent Labour suffering a decisive defeat.

Cameron and Osborne take inspiration from the Tories’ unlikely triumph in 1992, the first campaign in which they were involved, but they have forgotten one important ingredient: a change of prime minister. In a recent conversation, one shadow cabinet minister cited Gordon Brown’s “seven years theory” (as described in Damian McBride’s memoir) as evidence of why Cameron will struggle to deliver a Conservative victory.

According to this rule, after a politician has spent this long in the public eye, the voters invariably start to tire of them. Margaret Thatcher and Tony Blair were insulated from defeat by the large majorities they won in their pomp but this luxury is not available to Cameron. Unless he can increase the Conservatives’ vote share, Labour will almost certainly be the largest party after the election. Miliband continues to retain the support of more than a quarter of 2010 Liberal Democrat voters, a swing greater than the cumulative increase in the Conservative vote between 1997 and 2010.

The Tories’ “blue-collar” modernisers recognise that, to adapt Carville, “It’s living standards, stupid” is now a more appropriate slogan. But rebranding the party as one genuinely committed to sharing the proceeds of growth will be the work of a decade, not just 18 months. In the age of the wageless recovery, the Tories are about to discover that a rising economic tide no longer lifts the Conservative boat.

Rafael Behr returns next week

David Cameron with Ed Miliband as they stand in Westminster Hall ahead of an address by Myanmar opposition leader Aung San Suu Kyi on June 21, 2012 . Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

This article first appeared in the 30 October 2013 issue of the New Statesman, Should you bother to vote?

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Debunking Boris Johnson's claim that energy bills will be lower if we leave the EU

Why the Brexiteers' energy policy is less power to the people and more electric shock.

Boris Johnson and Michael Gove have promised that they will end VAT on domestic energy bills if the country votes to leave in the EU referendum. This would save Britain £2bn, or "over £60" per household, they claimed in The Sun this morning.

They are right that this is not something that could be done without leaving the Union. But is such a promise responsible? Might Brexit in fact cost us much more in increased energy bills than an end to VAT could ever hope to save? Quite probably.

Let’s do the maths...

In 2014, the latest year for which figures are available, the UK imported 46 per cent of our total energy supply. Over 20 other countries helped us keep our lights on, from Russian coal to Norwegian gas. And according to Energy Secretary Amber Rudd, this trend is only set to continue (regardless of the potential for domestic fracking), thanks to our declining reserves of North Sea gas and oil.


Click to enlarge.

The reliance on imports makes the UK highly vulnerable to fluctuations in the value of the pound: the lower its value, the more we have to pay for anything we import. This is a situation that could spell disaster in the case of a Brexit, with the Treasury estimating that a vote to leave could cause the pound to fall by 12 per cent.

So what does this mean for our energy bills? According to December’s figures from the Office of National Statistics, the average UK household spends £25.80 a week on gas, electricity and other fuels, which adds up to £35.7bn a year across the UK. And if roughly 45 per cent (£16.4bn) of that amount is based on imports, then a devaluation of the pound could cause their cost to rise 12 per cent – to £18.4bn.

This would represent a 5.6 per cent increase in our total spending on domestic energy, bringing the annual cost up to £37.7bn, and resulting in a £75 a year rise per average household. That’s £11 more than the Brexiteers have promised removing VAT would reduce bills by. 

This is a rough estimate – and adjustments would have to be made to account for the varying exchange rates of the countries we trade with, as well as the proportion of the energy imports that are allocated to domestic use – but it makes a start at holding Johnson and Gove’s latest figures to account.

Here are five other ways in which leaving the EU could risk soaring energy prices:

We would have less control over EU energy policy

A new report from Chatham House argues that the deeply integrated nature of the UK’s energy system means that we couldn’t simply switch-off the  relationship with the EU. “It would be neither possible nor desirable to ‘unplug’ the UK from Europe’s energy networks,” they argue. “A degree of continued adherence to EU market, environmental and governance rules would be inevitable.”

Exclusion from Europe’s Internal Energy Market could have a long-term negative impact

Secretary of State for Energy and Climate Change Amber Rudd said that a Brexit was likely to produce an “electric shock” for UK energy customers – with costs spiralling upwards “by at least half a billion pounds a year”. This claim was based on Vivid Economic’s report for the National Grid, which warned that if Britain was excluded from the IEM, the potential impact “could be up to £500m per year by the early 2020s”.

Brexit could make our energy supply less secure

Rudd has also stressed  the risks to energy security that a vote to Leave could entail. In a speech made last Thursday, she pointed her finger particularly in the direction of Vladamir Putin and his ability to bloc gas supplies to the UK: “As a bloc of 500 million people we have the power to force Putin’s hand. We can coordinate our response to a crisis.”

It could also choke investment into British energy infrastructure

£45bn was invested in Britain’s energy system from elsewhere in the EU in 2014. But the German industrial conglomerate Siemens, who makes hundreds of the turbines used the UK’s offshore windfarms, has warned that Brexit “could make the UK a less attractive place to do business”.

Petrol costs would also rise

The AA has warned that leaving the EU could cause petrol prices to rise by as much 19p a litre. That’s an extra £10 every time you fill up the family car. More cautious estimates, such as that from the RAC, still see pump prices rising by £2 per tank.

The EU is an invaluable ally in the fight against Climate Change

At a speech at a solar farm in Lincolnshire last Friday, Jeremy Corbyn argued that the need for co-orinated energy policy is now greater than ever “Climate change is one of the greatest fights of our generation and, at a time when the Government has scrapped funding for green projects, it is vital that we remain in the EU so we can keep accessing valuable funding streams to protect our environment.”

Corbyn’s statement builds upon those made by Green Party MEP, Keith Taylor, whose consultations with research groups have stressed the importance of maintaining the EU’s energy efficiency directive: “Outside the EU, the government’s zeal for deregulation will put a kibosh on the progress made on energy efficiency in Britain.”

India Bourke is the New Statesman's editorial assistant.