The market thinks the SNP will win 25-26 seats, not 50-plus. Photo: Getty.
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Who do the betting markets think will win the election?

The markets are clear: the SNP surge is over-hyped, Ukip will win few seats and a hung parliament is extremely likely.

This piece was originally published on May2015 – our general election microsite.

In the beginning there was the betting market. Long before anyone worked out the basics of statistical sampling, quotas or past vote weighting, the betting markets proved remarkably accurate in predicting political outcomes.

And in recent years things have only got better. New exchanges, such as Betfair, have eliminated the bookie, and allowed customers to create their own markets. Each punter can choose to either take a bet (the normal method everyone is familiar with) or “lay” one (in effect becoming the bookie).

If the market has many returning punters – if it is “active and deep” – you can have faith in the odds the market is offering. Bias is all but eliminated. And you can then work out the implied probability of an event, like who is going to win the next election. This involves a little maths but is relatively simple to do.

The bookies were an invaluable insight during the independence campaign, when they always heavily favoured a unionist victory. When the polls narrowed in September, the likelihood of a “No” vote fell, but still never dropped below 65 per cent (having been more than 85 per cent in August).

We can now use the bookies to track the implied probabilities of outcomes in May 2015. Here are five things they show which the polls miss.

1. Prepare for a hung parliament

While the polls still have Labour ahead for now, many are adamant it will all turn around for the Tories in the last few months. My response to that would be the market does not agree with you.

In the last few months "no overall majority" has become by far the most likely election outcome. The probability of it is now greater than 70 per cent. Compare that to Labour's and the Tories’ chance of winning a majority – they are less than 20 per cent.

2. Largest party? It's 50:50

The "long" election campaign theoretically only just started, but it's been quietly raging since 1 September. Back then, when Labour had a consistent 3-4 per cent lead in the polls, Labour were favoured to be the largest party by 58:42. After Labour's challenging autumn and early winter, those odds are now effectively 50:50.

Ladbrokes, the bookies, agrees. They think the odds of either party winning the most seats is 10/11 (52 per cent). [1] William Hill even slightly favour the Tories: they also put the Tories' odds at 10/11 but Labour's slightly lower – at "evens" (50 per cent).

3. No one has any idea what the post-election government will be

Both of the above markets are relatively active and deep so one can be confident about the information contained within the prices. In the more exotic markets you start to get quite speculative, however even here we can see a few interesting pieces of information.

For example the market for the next “type” of government is basically a shrug of the shoulders, with money spread everywhere and “any other” more likely than any specific scenario. Should we prepare for a Tory or Labour-led government? A majority or minority? A coalition involving the Lib Dems? All outcomes rate as equally unlikely.

For anyone thinking the next government is going to be a Tory/UKIP coalition, right now you have a 94 per cent probability of being wrong.

4. The SNP surge is only being taken half seriously

In Scotland we are all mulling over the possibility of an SNP advance after the independence referendum. Right now the party are riding high in the polls with double-digit leads over Labour (predict how many seats they might win on May2015).

This has led to near weekly forecasts that the SNP will sweep all of Scotland. The markets are, as yet, unconvinced. The SNP currently hold six seats. Polls suggest they could win the vast majority of Labour's 40 seats and all of the Lib Dems' 11. May2015 recently looked at why they might struggle to win more than 20 Labour seats. The bookies agree – Ladbrokes thinks they will win 25-26, adding 19-20 to the six they currently hold.

The bookies think the SNP will win 25-26 seats, not 50-plus.

The exchanges offer less precise odds but concur – they suggest the SNP will to more than 12 but fewer than 35. If we look to the polls, something revolutionary is going on in Scotland. If we look to the markets, the SNP is surging but will still be smaller in 2015 than Scottish Labour are now. Wait for the markets to move before taking the latest apocalyptic poll too seriously.

5. Ukip are not expected to win many seats

The other big unknown in May is Ukip. They are consistently polling around 15 per cent. They now have two MPs, and Lord Ashcroft's polls have suggested they are challenging in another half a dozen or so.

But the markets suggest they will only win between three and six seats. What should you trust? The betting exchanges offer a crowd-sourced level of analysis of what is expected to happen in May – only a mouse click away. The more you get into analysing odds the more you will start to understand their power (and limitations).

The information is even updated second-by-second, so you needn't wait for the latest polls to get an idea of who is up and down. [1] The combined odds are slightly greater than 100 per cent because of the "over-round", which is how bookies make money.

May2015 will keep you updated with the latest odds – on which party is expected to win the most seats and most votes, who is favoured to be the next PM, and what the next government will be, from now until May.

May2015 is the New Statesman's new elections site. Explore it for data, interviews and ideas on the general election.

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The Autumn Statement proved it – we need a real alternative to austerity, now

Theresa May’s Tories have missed their chance to rescue the British economy.

After six wasted years of failed Conservative austerity measures, Philip Hammond had the opportunity last month in the Autumn Statement to change course and put in place the economic policies that would deliver greater prosperity, and make sure it was fairly shared.

Instead, he chose to continue with cuts to public services and in-work benefits while failing to deliver the scale of investment needed to secure future prosperity. The sense of betrayal is palpable.

The headline figures are grim. An analysis by the Institute for Fiscal Studies shows that real wages will not recover their 2008 levels even after 2020. The Tories are overseeing a lost decade in earnings that is, in the words Paul Johnson, the director of the IFS, “dreadful” and unprecedented in modern British history.

Meanwhile, the Treasury’s own analysis shows the cuts falling hardest on the poorest 30 per cent of the population. The Office for Budget Responsibility has reported that it expects a £122bn worsening in the public finances over the next five years. Of this, less than half – £59bn – is due to the Tories’ shambolic handling of Brexit. Most of the rest is thanks to their mishandling of the domestic economy.

 

Time to invest

The Tories may think that those people who are “just about managing” are an electoral demographic, but for Labour they are our friends, neighbours and the people we represent. People in all walks of life needed something better from this government, but the Autumn Statement was a betrayal of the hopes that they tried to raise beforehand.

Because the Tories cut when they should have invested, we now have a fundamentally weak economy that is unprepared for the challenges of Brexit. Low investment has meant that instead of installing new machinery, or building the new infrastructure that would support productive high-wage jobs, we have an economy that is more and more dependent on low-productivity, low-paid work. Every hour worked in the US, Germany or France produces on average a third more than an hour of work here.

Labour has different priorities. We will deliver the necessary investment in infrastructure and research funding, and back it up with an industrial strategy that can sustain well-paid, secure jobs in the industries of the future such as renewables. We will fight for Britain’s continued tariff-free access to the single market. We will reverse the tax giveaways to the mega-rich and the giant companies, instead using the money to make sure the NHS and our education system are properly funded. In 2020 we will introduce a real living wage, expected to be £10 an hour, to make sure every job pays a wage you can actually live on. And we will rebuild and transform our economy so no one and no community is left behind.

 

May’s missing alternative

This week, the Bank of England governor, Mark Carney, gave an important speech in which he hit the proverbial nail on the head. He was completely right to point out that societies need to redistribute the gains from trade and technology, and to educate and empower their citizens. We are going through a lost decade of earnings growth, as Carney highlights, and the crisis of productivity will not be solved without major government investment, backed up by an industrial strategy that can deliver growth.

Labour in government is committed to tackling the challenges of rising inequality, low wage growth, and driving up Britain’s productivity growth. But it is becoming clearer each day since Theresa May became Prime Minister that she, like her predecessor, has no credible solutions to the challenges our economy faces.

 

Crisis in Italy

The Italian people have decisively rejected the changes to their constitution proposed by Prime Minister Matteo Renzi, with nearly 60 per cent voting No. The Italian economy has not grown for close to two decades. A succession of governments has attempted to introduce free-market policies, including slashing pensions and undermining rights at work, but these have had little impact.

Renzi wanted extra powers to push through more free-market reforms, but he has now resigned after encountering opposition from across the Italian political spectrum. The absence of growth has left Italian banks with €360bn of loans that are not being repaid. Usually, these debts would be written off, but Italian banks lack the reserves to be able to absorb the losses. They need outside assistance to survive.

 

Bail in or bail out

The oldest bank in the world, Monte dei Paschi di Siena, needs €5bn before the end of the year if it is to avoid collapse. Renzi had arranged a financing deal but this is now under threat. Under new EU rules, governments are not allowed to bail out banks, like in the 2008 crisis. This is intended to protect taxpayers. Instead, bank investors are supposed to take a loss through a “bail-in”.

Unusually, however, Italian bank investors are not only big financial institutions such as insurance companies, but ordinary households. One-third of all Italian bank bonds are held by households, so a bail-in would hit them hard. And should Italy’s banks fail, the danger is that investors will pull money out of banks across Europe, causing further failures. British banks have been reducing their investments in Italy, but concerned UK regulators have asked recently for details of their exposure.

John McDonnell is the shadow chancellor


John McDonnell is Labour MP for Hayes and Harlington and has been shadow chancellor since September 2015. 

This article first appeared in the 08 December 2016 issue of the New Statesman, Brexit to Trump