The Tories' big bet is that living standards will soon start to rise

Cameron's hope is that warnings of a "cost of living crisis" will fade as higher growth translates into higher wages. But Labour remains sceptical.

Both David Cameron and Ed Miliband used the former's Commons statement on last week's European Council meeting to thrash out the arguments over last Friday's GDP figures. After noting that Cameron had vowed to build a "recovery for all" (suggesting that it is currently just a recovery for some), Miliband challenged him on whether this was an admission that there is a "cost of living crisis". He pointed out that the UK has "the highest inflation in Europe" (2.7%) and that wage growth in the most recent quarter (0.7%) was the lowest "on record".

Cameron responded by reminding Miliband of his prediction that public sector job losses would outweigh private sector job creation and boasted that, after earlier warnings of recession, the UK was now forecast to grow "more than twice as fast as Germany". The PM's big bet is that Labour's warnings of a "living standards crisis" will prove similarly mistaken as higher growth translates into higher wages. In the view of the Treasury, the latter are a "lagging indicator" that will come to mirror the rise in GDP. 

But Labour remains confident that the government lacks a strategy to ensure that the proceeds of growth are fairly shared. While there may be one or two months before the election in which wage increases exceed price rises, it believes that any gains will be concentrated at the top (as in April 2013 when real wages rose after deferred bonuses were paid out following the abolition of the 50p tax rate) and that the damage done since 2010 (the average earner is £1,500 a year worse off since May 2010) will continue to weigh heavily on voters' minds. But in George Osborne's words, the Tories believe that "if Britain is growing then the finances of Britain's families will start to grow". Whichever is right will do much to determine the outcome in 2015.

 

Ed Miliband and Prime Minister David Cameron during the service to celebrate the 60th anniversary of the Coronation of Queen Elizabeth II at Westminster Abbey, on June 4, 2013 in London. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Can Philip Hammond save the Conservatives from public anger at their DUP deal?

The Chancellor has the wriggle room to get close to the DUP's spending increase – but emotion matters more than facts in politics.

The magic money tree exists, and it is growing in Northern Ireland. That’s the attack line that Labour will throw at Theresa May in the wake of her £1bn deal with the DUP to keep her party in office.

It’s worth noting that while £1bn is a big deal in terms of Northern Ireland’s budget – just a touch under £10bn in 2016/17 – as far as the total expenditure of the British government goes, it’s peanuts.

The British government spent £778bn last year – we’re talking about spending an amount of money in Northern Ireland over the course of two years that the NHS loses in pen theft over the course of one in England. To match the increase in relative terms, you’d be looking at a £35bn increase in spending.

But, of course, political arguments are about gut instinct rather than actual numbers. The perception that the streets of Antrim are being paved by gold while the public realm in England, Scotland and Wales falls into disrepair is a real danger to the Conservatives.

But the good news for them is that last year Philip Hammond tweaked his targets to give himself greater headroom in case of a Brexit shock. Now the Tories have experienced a shock of a different kind – a Corbyn shock. That shock was partly due to the Labour leader’s good campaign and May’s bad campaign, but it was also powered by anger at cuts to schools and anger among NHS workers at Jeremy Hunt’s stewardship of the NHS. Conservative MPs have already made it clear to May that the party must not go to the country again while defending cuts to school spending.

Hammond can get to slightly under that £35bn and still stick to his targets. That will mean that the DUP still get to rave about their higher-than-average increase, while avoiding another election in which cuts to schools are front-and-centre. But whether that deprives Labour of their “cuts for you, but not for them” attack line is another question entirely. 

Stephen Bush is special correspondent at the New Statesman. His daily briefing, Morning Call, provides a quick and essential guide to domestic and global politics.

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