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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Tony Blair might be a toxic figure - but his influence endures

Politicians at home and abroad are borrowing from the former prime minister's playbook. 

On 24 May at Methodist Central Hall, Westminster, a short distance from where he once governed, Tony Blair resurfaced for a public discussion. Having arrived on an overnight flight, he looked drawn and puffy-eyed but soon warmed to his theme: a robust defence of liberal globalisation. He admitted, however, to bafflement at recent events in the world. "I thought I was pretty good at politics. But I look at politics today and I’m not sure I understand it."

Blair lost power in the summer of 2007. In the ensuing nine years, he lost reputation. His business ventures and alliances with autocrats have made him a pariah among both the public and his party. A YouGov poll published last year found that 61 per cent of voters regarded Blair as an electoral liability, while just 14 per cent viewed him as an asset. In contrast, John Major, whom he defeated by a landslide in 1997, had a neutral net rating of zero. It is ever harder to recall that Blair won not one general election (he is the only living Labour leader to have done so) but three.

His standing is likely to diminish further when the Iraq inquiry report is published on 6 July. Advance leaks to the Sunday Times suggest that he will be censured for allegedly guaranteeing British military support to the US a year before the invasion. Few minds on either side will be changed by the 2.6 million-word document. Yet its publication will help enshrine Iraq as the defining feature of a legacy that also includes the minimum wage, tax credits, Sure Start, devolution and civil partnerships.

Former leaders can ordinarily rely on their parties to act as a last line of defence. In Blair’s case, however, much of the greatest opprobrium comes from his own side. Jeremy Corbyn inclines to the view that Iraq was not merely a blunder but a crime. In last year’s Labour leadership election, Liz Kendall, the most Blair-esque candidate, was rewarded with 4.5 per cent of the vote. The former prime minister’s imprimatur has become the political equivalent of the black spot.

Yet outside of the Labour leadership, Blairism endures in notable and often surprising forms. Sadiq Khan won the party’s London mayoral selection by running to the left of Tessa Jowell, one of Tony Blair’s closest allies. But his successful campaign against Zac Goldsmith drew lessons from Blair’s election triumphs. Khan relentlessly presented himself as “pro-business” and reached out beyond Labour’s core vote. After his victory, he was liberated to use the B-word, contrasting what “Tony Blair did [in opposition]” with Corbyn’s approach.

In their defence of the UK’s EU membership, David Cameron and George Osborne have deployed arguments once advanced by New Labour. The strategically minded Chancellor has forged an unlikely friendship with his former nemesis Peter Mandelson. In the domestic sphere, through equal marriage, the National Living Wage and the 0.7 per cent overseas aid target, the Conservatives have built on, rather than dismantled, significant Labour achievements."They just swallowed the entire manual," Mandelson declared at a recent King’s College seminar. "They didn’t just read the executive summary, they are following the whole thing to the letter."

Among SNP supporters, "Blairite" is the pejorative of choice. But the parallels between their party and New Labour are more suggestive than they would wish. Like Blair, Alex Salmond and Nicola Sturgeon have avoided income tax rises in order to retain the support of middle-class Scottish conservatives. In a speech last August on education, Sturgeon echoed the Blairite mantra that "what matters is what works".

Beyond British shores, political leaders are similarly inspired by Blair – and less reticent about acknowledging as much. Matteo Renzi, the 41-year-old centre-left Italian prime minister, is a long-standing admirer. "I adore one of his sayings,” he remarked in 2013. “I love all the traditions of my party, except one: that of losing elections."

In France, the reform-minded prime minister, Manuel Valls, and the minister of economy, Emmanuel Macron, are also self-described Blairites. Macron, who in April launched his own political movement, En Marche!, will shortly decide whether to challenge for the presidency next year. When he was compared to Blair by the TV presenter Andrew Marr, his response reflected the former prime minister’s diminished domestic reputation: “I don’t know if, in your mouth, that is a promise or a threat.”

The continuing attraction of Blair’s “third way” to European politicians reflects the failure of the project’s social-democratic critics to construct an alternative. Those who have sought to do so have struggled both in office (François Hollande) and out of it (Ed Miliband). The left is increasingly polarised between reformers and radicals (Corbyn, Syriza, Podemos), with those in between straining for relevance.

Despite his long absences from Britain, Blair’s friends say that he remains immersed in the intricacies of Labour politics. He has privately warned MPs that any attempt to keep Corbyn off the ballot in the event of a leadership challenge would be overruled by the National Executive Committee. At Methodist Central Hall, he said of Corbyn’s supporters: “It’s clear they can take over a political party. What’s not clear to me is whether they can take over a country.”

It was Blair’s insufficient devotion to the former task that enabled the revival of the left. As Alastair Campbell recently acknowledged: “We failed to develop talent, failed to cement organisational and cultural change in the party and failed to secure our legacy.” Rather than effecting a permanent realignment, as the right of the party hoped and the left feared, New Labour failed to outlive its creators.

It instead endures in a fragmented form as politicians at home and abroad co-opt its defining features: its pro-business pragmatism, its big-tent electoralism, its presentational nous. Some of Corbyn’s ­allies privately fear that Labour will one day re-embrace Blairism. But its new adherents would never dare to use that name.

George Eaton is political editor of the New Statesman.

This article first appeared in the 26 May 2016 issue of the New Statesman, The Brexit odd squad