If we’re past the worst, then no one thought to tell consumers

British households have become more, not less, concerned over the last five years.

At a time of growing optimism among UK policy makers that the worst might be behind us, ASR’s latest Survey of UK Household Finances suggests that the erstwhile engine of the economy, the consumer, is a long way from returning to health. Despite the glee shown in some quarters over the UK economy’s 0.3 per cent growth in the first quarter of this year, 23 per cent of working-age households think the UK is in depression, while a further 45 per cent believe it is in recession. British households have become more, not less, concerned over the last five years, with one in four worried for their job security. This is generating a cautious attitude towards spending and saving decisions that shows no sign of letting up.

Prior to 2007, the UK experienced a rapid rise in household debt relative to incomes, reaching a level that surpassed all other G7 economies. There were three trends underlying this increase. First, the UK saw a substantial rise in income inequality, but one that was not matched by an equivalent disparity in spending habits. Second, the UK was subject to growing regional divergences, with average incomes in London and the South East pulling further away from the rest of the UK. Third, financial innovation allowed greater access to credit; by 2007, 12,000 different mortgage products were available in the UK, with roughly two thirds targeted at ‘credit impaired’ borrowers. Simultaneously, the average loan-to-income ratio among first-time buyers rose from roughly 2½ times to almost 3½. Together, these trends imply young households at the lower end of the income distribution living outside London accounted for a disproportionate share of the rise in debt.

Sure enough, the Household Survey indicates that these are the individuals now under most financial stress. Of those earning less than £15,000 per year, 93 per cent worry about their financial situation and 85 per cent believe they are saving too little. Of those in this income group with outstanding debts, 54 per cent feel they are too high relative to their incomes and 43 per cent have had trouble meeting their interest payments over the last year.

This matters for the macroeconomy, since it is the distribution of debts that determines their sustainability rather than their aggregate size. With credit remaining ‘tight’, fiscal consolidation hitting the regions hardest and youth unemployment running at elevated rates, it is little wonder that the economy has struggled to get back to growth – the UK’s old growth model is broken. Rebalancing is proving to be a slow and painful process.

This difficult backdrop is splintering the voting base away from the three traditional mainstream political parties, and has proved a gift for the insurgent UK Independence Party (UKIP). By far the biggest losers from UKIP’s rise have been Conservatives, who have shed as many as 25 per cent of their 2010 voters to the party. 

Measures that might help those under greatest financial duress, such as reducing the pace of fiscal tightening, are likely to prove unpopular with those remaining faithful to the Tories. According to our survey, 92 per cent of Conservative Party supporters believe that addressing the national debt should remain a priority, and 64 per cent approve of the current government’s handling of the economy. More strikingly, however, it is not clear that such a move would curry favour among those it would be targeted at helping: those struggling to manage their own debts are marginally more inclined to agree that tackling the government’s debts should be a priority. The Tories look damned if they do and damned if they don’t.

A chasm has opened up between Tory supporters and the rest. Just 36 per cent of Conservatives say they are worse off since the last election, compared with 64 per cent of other voters. A striking feature of the survey is just how closely aligned UKIP, Labour and non-affiliated voters look in many respects (see chart 1) and how far from the rest the average Tory supporter is. In the absence of economic recovery, the Conservative Party will face an uphill struggle to win back swing voters.

All that said, there could be a chink of light for the Conservatives. Our survey indicates a growing belief that house prices will rise over the coming 12 months; on balance, 17 per cent think home values are more likely to rise than fall. The long-term efficacy of the recently-announced Help to Buy scheme seems questionable, but it already appears to be stirring up interest in the housing market. The motivation behind this seems quite simple: historically, there has been a strong correlation between house prices and consumer confidence in the UK. It seems like a gamble, but with few alternative options, it is a gamble worth taking.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

George Osborne arrives to attend a press conference at the conclusion of the IMF mission to the UK. Photograph: Getty Images.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

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Who will win in Copeland? The Labour heartland hangs in the balance

The knife-edge by-election could end 82 years of Labour rule on the West Cumbrian coast.

Fine, relentless drizzle shrouds Whitehaven, a harbour town exposed on the outer edge of Copeland, West Cumbria. It is the most populous part of the coastal north-western constituency, which takes in everything from this old fishing port to Sellafield nuclear power station to England’s tallest mountain Scafell Pike. Sprawling and remote, it protrudes from the heart of the Lake District out into the Irish Sea.

Billy, a 72-year-old Whitehaven resident, is out for a morning walk along the marina with two friends, his woolly-hatted head held high against the whipping rain. He worked down the pit at the Haig Colliery for 27 years until it closed, and now works at Sellafield on contract, where he’s been since the age of 42.

“Whatever happens, a change has got to happen,” he says, hands stuffed into the pockets of his thick fleece. “If I do vote, the Bootle lass talks well for the Tories. They’re the favourites. If me mam heard me saying this now, she’d have battered us!” he laughs. “We were a big Labour family. But their vote has gone. Jeremy Corbyn – what is he?”

The Conservatives have their sights on traditional Labour voters like Billy, who have been returning Labour MPs for 82 years, to make the first government gain in a by-election since 1982.

Copeland has become increasingly marginal, held with just 2,564 votes by former frontbencher Jamie Reed, who resigned from Parliament last December to take a job at the nuclear plant. He triggered a by-election now regarded by all sides as too close to call. “I wouldn’t put a penny on it,” is how one local activist sums up the mood.

There are 10,000 people employed at the Sellafield site, and 21,000 jobs are promised for nearby Moorside – a project to build Europe’s largest nuclear power station now thrown into doubt, with Japanese company Toshiba likely to pull out.

Tories believe Jeremy Corbyn’s stance on nuclear power (he limply conceded it could be part of the “energy mix” recently, but his long prevarication betrayed his scepticism) and opposition to Trident, which is hosted in the neighbouring constituency of Barrow-in-Furness, could put off local employees who usually stick to Labour.

But it’s not that simple. The constituency may rely on nuclear for jobs, but I found a notable lack of affection for the industry. While most see the employment benefits, there is less enthusiasm for Sellafield being part of their home’s identity – particularly in Whitehaven, which houses the majority of employees in the constituency. Also, unions representing Sellafield workers have been in a dispute for months with ministers over pension cut plans.

“I worked at Sellafield for 30 years, and I’m against it,” growls Fred, Billy’s friend, a retiree of the same age who also used to work at the colliery. “Can you see nuclear power as safer than coal?” he asks, wild wiry eyebrows raised. “I’m a pit man; there was just nowhere else to work [when the colliery closed]. The pension scheme used to be second-to-none, now they’re trying to cut it, changing the terms.”

Derek Bone, a 51-year-old who has been a storeman at the plant for 15 years, is equally unconvinced. I meet him walking his dog along the seafront. “This county, Cumbria, Copeland, has always been a nuclear area – whether we like it or don’t,” he says, over the impatient barks of his Yorkshire terrier Milo. “But people say it’s only to do with Copeland. It ain’t. It employs a lot of people in the UK, outside the county – then they’re spending the money back where they’re from, not here.”

Such views might be just enough of a buffer against the damage caused by Corbyn’s nuclear reluctance. But the problem for Labour is that neither Fred nor Derek are particularly bothered about the result. While awareness of the by-election is high, many tell me that they won’t be voting this time. “Jeremy Corbyn says he’s against it [nuclear], now he’s not, and he could change his mind – I don’t believe any of them,” says Malcolm Campbell, a 55-year-old lorry driver who is part of the nuclear supply chain.

Also worrying for Labour is the deprivation in Copeland. Everyone I speak to complains about poor infrastructure, shoddy roads, derelict buildings, and lack of investment. This could punish the party that has been in power locally for so long.

The Tory candidate Trudy Harrison, who grew up in the coastal village of Seascale and now lives in Bootle, at the southern end of the constituency, claims local Labour rule has been ineffective. “We’re isolated, we’re remote, we’ve been forgotten and ignored by Labour for far too long,” she says.

I meet her in the town of Millom, at the southern tip of the constituency – the opposite end to Whitehaven. It centres on a small market square dominated by a smart 19th-century town hall with a mint-green domed clock tower. This is good Tory door-knocking territory; Millom has a Conservative-led town council.

While Harrison’s Labour opponents are relying on their legacy vote to turn out, Harrison is hoping that the same people think it’s time for a change, and can be combined with the existing Tory vote in places like Millom. “After 82 years of Labour rule, this is a huge ask,” she admits.

Another challenge for Harrison is the threat to services at Whitehaven’s West Cumberland Hospital. It has been proposed for a downgrade, which would mean those seeking urgent care – including children, stroke sufferers, and those in need of major trauma treatment and maternity care beyond midwifery – would have to travel the 40-mile journey to Carlisle on the notoriously bad A595 road.

Labour is blaming this on Conservative cuts to health spending, and indeed, Theresa May dodged calls to rescue the hospital in her campaign visit last week. “The Lady’s Not For Talking,” was one local paper front page. It also helps that Labour’s candidate, Gillian Troughton, is a St John Ambulance driver, who has driven the dangerous journey on a blue light.

“Seeing the health service having services taken away in the name of centralisation and saving money is just heart-breaking,” she tells me. “People are genuinely frightened . . . If we have a Tory MP, that essentially gives them the green light to say ‘this is OK’.”

But Harrison believes she would be best-placed to reverse the hospital downgrade. “[I] will have the ear of government,” she insists. “I stand the very best chance of making sure we save those essential services.”

Voters are concerned about the hospital, but divided on the idea that a Tory MP would have more power to save it.

“What the Conservatives are doing with the hospitals is disgusting,” a 44-year-old carer from Copeland’s second most-populated town of Egremont tells me. Her partner, Shaun Grant, who works as a labourer, agrees. “You have to travel to Carlisle – it could take one hour 40 minutes; the road is unpredictable.” They will both vote Labour.

Ken, a Conservative voter, counters: “People will lose their lives over it – we need someone in the circle, who can influence the government, to change it. I think the government would reward us for voting Tory.”

Fog engulfs the jagged coastline and rolling hills of Copeland as the sun begins to set on Sunday evening. But for most voters and campaigners here, the dense grey horizon is far clearer than what the result will be after going to the polls on Thursday.

Anoosh Chakelian is senior writer at the New Statesman.