The Tories will find it harder to justify austerity now growth has returned

As the economy accelerates, it will become increasingly difficult for Osborne to defend the 1% cap on public sector pay rises.

With the return of growth (some forecasters predict output as high as 3% next year), the Tories are increasingly confident that they can win the next election. While vulnerable to Labour's charge that this is a "recovery for the few, not the many", with living standards falling even as GDP rises, they argue that higher growth 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.

But as I write in this week's NS politics column, Labour doesn't buy this optimistic analysis. In its view, the link between higher growth and higher wages has been severed and will not be easily repaired. Ed Miliband’s team point 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).

A further problem for the Tories is the issue of public sector wages. In his most recent Budget, George Osborne extended the 1% cap on pay increases until 2015-16, entailing further real-terms cuts for workers. But with the return of growth, such austerity will become harder to justify; voters will want their slice of an expanding cake.

If, as the Tories hope, private sector earnings begin to rise, they will no longer be able to defend public sector pay restraint on the grounds of fairnes, while voters in general are likely to become less sympathetic to the case for deficit reduction as growth accelerates. One reason why Osborne imposed immediate cuts in 2010 was that he feared they would be harder to defend if he waited until a strong recovery was underway.

If the Tories want to win over the voters they will need to remain the largest party in 2015, they would be wise to offer some relief to the public sector. As Renewal, the Conservative group aimed at broadening the party's appeal among working class, northern and ethnic minority voters, has noted, the majority of Tory target seats have a higher than average share of public sector workers, including 60% of Labour-held targets and half of the top 20 Lib Dem-held targets. While the Tories are likely to pledge to cut taxes for all workers, in the form of a £12,500 personal allowance, they should also consider easing the squeee on the public sector.

George Osborne and Michael Gove listen to speeches at the Conservative conference in Manchester earlier this month. Photograph: Getty Images.

George Eaton is political editor of the New Statesman.

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Theresa May knows she's talking nonsense - here's why she's doing it

The Prime Minister's argument increases the sense that this is a time to "lend" - in her words - the Tories your vote.

Good morning.  Angela Merkel and Theresa May are more similar politicians than people think, and that holds true for Brexit too. The German Chancellor gave a speech yesterday, and the message: Brexit means Brexit.

Of course, the emphasis is slightly different. When May says it, it's about reassuring the Brexit elite in SW1 that she isn't going to backslide, and anxious Remainers and soft Brexiteers in the country that it will work out okay in the end.

When Merkel says it, she's setting out what the EU wants and the reality of third country status outside the European Union.  She's also, as with May, tilting to her own party and public opinion in Germany, which thinks that the UK was an awkward partner in the EU and is being even more awkward in the manner of its leaving.

It's a measure of how poor the debate both during the referendum and its aftermath is that Merkel's bland statement of reality - "A third-party state - and that's what Britain will be - can't and won't be able to have the same rights, let alone a better position than a member of the European Union" - feels newsworthy.

In the short term, all this helps Theresa May. Her response - delivered to a carefully-selected audience of Leeds factory workers, the better to avoid awkward questions - that the EU is "ganging up" on Britain is ludicrous if you think about it. A bloc of nations acting in their own interest against their smaller partners - colour me surprised!

But in terms of what May wants out of this election - a massive majority that gives her carte blanche to implement her agenda and puts Labour out of contention for at least a decade - it's a great message. It increases the sense that this is a time to "lend" - in May's words - the Tories your vote. You may be unhappy about the referendum result, you may usually vote Labour - but on this occasion, what's needed is a one-off Tory vote to make Brexit a success.

May's message is silly if you pay any attention to how the EU works or indeed to the internal politics of the EU27. That doesn't mean it won't be effective.

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

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