The economy: hurting, yes. Working, maybe - but for whom?

Growth that doesn't fix the squeeze on living standards poses a challenge to all parties.

Ken Clarke, the cabinet minister with responsibility for giving mildly revealing interviews, has given a mildly revealing interview to the Daily Telegraph. The item that has grabbed most headlines is the acknowledgement that the government is unlikely to legislate to create a tax break for married couples this parliament. That is disappointing to the Conservative right but not entirely surprising. Tax cuts are a very precious political commodity; the Lib Dems are opposed to this particular one and would demand something juicy in return. The Tory leadership is happy to do those sorts of deals in theory but is not wedded enough [sorry, no pun intended] to the idea of a marriage allowance to squander coalition negotiating capital on it.

Also interesting is Clarke’s line on the economy:

If we are back to strong growth by the next election, we probably won’t need to campaign. If at the next election, the economy is in strong normal growth, George Osborne will be given the Companion of Honour or something and we will all get safe back.

Clarke adds, of course, that such a scenario is supremely unlikely and that a more plausible campaign for the Tories in 2015 is one that advertises them as having a “safe hand on the tiller.” That, along with dark warnings against prematurely handing responsibility for the economy back to Labour – and especially Ed Balls - is bound to be the outline of the Conservative pitch at the next election.  

The news last Thursday that the economy has formally exited recession has opened up a whole new school of political speculation – how does the return of growth change things? This is peculiar in a way because no-one expected the economy to shrink forever. Some recovery was always in prospect. What matters in economic terms is how robust it is. Some pessimists are forecasting a slump back into negative territory – a “triple dip” – most analysts expect weak growth whose benefits will not be widely felt.

Yet politically, Thursday’s positive number has made a difference. There are two reasons for that.

First, Labour MPs and shadow ministers – as I noted in my column last week – were already fretting about their apparent lack of a “fair weather” strategy. The previous week’s relatively buoyant employment figures provoked an attack of nerves, with some anxious consideration of the prospect that the Tory plan might really be working – or be superficially yet plausibly presentable as working. That is really a subset of anxiety about Ed Balls’s handling of the role of shadow chancellor. Broadly speaking he has called the macro-economics of the past two years right. For that he gets a lot of credit in Labour ranks – and among some non-partisan economists. He forecast a double dip and there was one.

But politically he has failed to stick the blame for that recession firmly on the coalition. Opinion polls show a gradual shift on the question of who is more trusted to run the economy – away from the Tories and towards Labour. But given the predictable mid-term dip experienced by any administration and the empirical fact that George Osborne inherited a growing economy and promptly shrank it, the Conservative ratings on the economy are – from Labour’s point of view – shockingly, depressingly good.

The whispering against Balls in the Labour ranks is that he has gambled too much on being vindicated by economics and has misplayed the politics. No-one wants the opposition to be ghoulishly willing the economy to fail. And if, come 2015, it is growing, no-one will be much impressed by a retrospective and unprovable claim that it might have grown sooner and better had the Tories not cut too far too fast in the early stages of the parliament.

That leads to the second obstacle facing Labour, which is psychological as much as political. It is the problem of cognitive dissonance. This is the phenomenon that leads people to unconsciously ignore or reject evidence that challenges a prejudice, because doing so is less painful than recognising and owning up to a fault. In this case, the Liberal Democrats, the Tory-inclined media and quite a few people who voted Conservative all have a profound emotional investment in Ed Balls having been wrong all along. That need will, in most cases, far outweigh the reasonable argument that – in a purely dispassionate account of the economic evidence – he was right. More generally, swing voters who backed coalition parties will be marginally predisposed to give Osborne some economic benefit of the doubt because they don’t want to think – or be told – that ejecting  Labour was an error and that the problems we now face are, to some extent, their own fault.

All of that means that Labour needs to be relentlessly focused on the future. To be fair, Ed Miliband seems to understand this. A crucial point – and an area of great danger for the Tories – is that a return to growth will not end the squeeze on living standards for people in middle of the income scale and below. This recovery will be unlike the bounce back from past recessions. Real wages and the purchasing power of many voters will still feel as if they are shrinking.

Later this week, the Resolution Foundation - the politically neutral think tank that has done more than any institution in Britain to define and highlight the “squeezed middle”  phenomenon – publishes the final report of its Commission on Living Standards. This is an epic piece of work that has drawn testimony and data from a wider range of expert individuals and institutions over the past 18 months. The report will look at various scenarios that might evolve over the next few years and the policy priorities implied by those outcomes. It will be a big mid-week story and makes, from what I have heard, uncomfortable reading in various ways for all political parties.

One thing we already know from past analysis by Resolution and others, such as the IFS, is that many people who consider themselves middle class and who generally expect a growing economy to make them feel more prosperous will reach the next election feeling discernibly poorer than they were in 2010. The political hazard for the Tories is that, even if they try to avoid triumphalism, they will be addressing the electorate with a message that says, in essence, “it hurt but it’s working” and the public will respond by saying “you say it, but it sure as hell doesn’t feel that way to us.” Or, worse, they will think “working for whom, exactly? You and your rich mates, perhaps, but not for us.”

Understanding that feeling and turning it into support for a different, fairer account of the future under Labour is Ed Miliband’s goal. The question for him and his shadow chancellor is whether or not the pursuit of that target means moving on from the big macro-economic argument of the past two years. It is a painful proposition, especially for Ed Balls. Perhaps he was right all along; perhaps no-one cares.

Good economic news puts the Labour under pressure. Source: Getty

Rafael Behr is political columnist at the Guardian and former political editor of the New Statesman

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Hannan Fodder: This week, Daniel Hannan gets his excuses in early

I didn't do it. 

Since Daniel Hannan, a formerly obscure MEP, has emerged as the anointed intellectual of the Brexit elite, The Staggers is charting his ascendancy...

When I started this column, there were some nay-sayers talking Britain down by doubting that I was seriously going to write about Daniel Hannan every week. Surely no one could be that obsessed with the activities of one obscure MEP? And surely no politician could say enough ludicrous things to be worthy of such an obsession?

They were wrong, on both counts. Daniel and I are as one on this: Leave and Remain, working hand in glove to deliver on our shared national mission. There’s a lesson there for my fellow Remoaners, I’m sure.

Anyway. It’s week three, and just as I was worrying what I might write this week, Dan has ridden to the rescue by writing not one but two columns making the same argument – using, indeed, many of the exact same phrases (“not a club, but a protection racket”). Like all the most effective political campaigns, Dan has a message of the week.

First up, on Monday, there was this headline, in the conservative American journal, the Washington Examiner:

“Why Brexit should work out for everyone”

And yesterday, there was his column on Conservative Home:

“We will get a good deal – because rational self-interest will overcome the Eurocrats’ fury”

The message of the two columns is straightforward: cooler heads will prevail. Britain wants an amicable separation. The EU needs Britain’s military strength and budget contributions, and both sides want to keep the single market intact.

The Con Home piece makes the further argument that it’s only the Eurocrats who want to be hardline about this. National governments – who have to answer to actual electorates – will be more willing to negotiate.

And so, for all the bluster now, Theresa May and Donald Tusk will be skipping through a meadow, arm in arm, before the year is out.

Before we go any further, I have a confession: I found myself nodding along with some of this. Yes, of course it’s in nobody’s interests to create unnecessary enmity between Britain and the continent. Of course no one will want to crash the economy. Of course.

I’ve been told by friends on the centre-right that Hannan has a compelling, faintly hypnotic quality when he speaks and, in retrospect, this brief moment of finding myself half-agreeing with him scares the living shit out of me. So from this point on, I’d like everyone to keep an eye on me in case I start going weird, and to give me a sharp whack round the back of the head if you ever catch me starting a tweet with the word, “Friends-”.

Anyway. Shortly after reading things, reality began to dawn for me in a way it apparently hasn’t for Daniel Hannan, and I began cataloguing the ways in which his argument is stupid.

Problem number one: Remarkably for a man who’s been in the European Parliament for nearly two decades, he’s misunderstood the EU. He notes that “deeper integration can be more like a religious dogma than a political creed”, but entirely misses the reason for this. For many Europeans, especially those from countries which didn’t have as much fun in the Second World War as Britain did, the EU, for all its myriad flaws, is something to which they feel an emotional attachment: not their country, but not something entirely separate from it either.

Consequently, it’s neither a club, nor a “protection racket”: it’s more akin to a family. A rational and sensible Brexit will be difficult for the exact same reasons that so few divorcing couples rationally agree not to bother wasting money on lawyers: because the very act of leaving feels like a betrayal.

Or, to put it more concisely, courtesy of Buzzfeed’s Marie Le Conte:

Problem number two: even if everyone was to negotiate purely in terms of rational interest, our interests are not the same. The over-riding goal of German policy for decades has been to hold the EU together, even if that creates other problems. (Exhibit A: Greece.) So there’s at least a chance that the German leadership will genuinely see deterring more departures as more important than mutual prosperity or a good relationship with Britain.

And France, whose presidential candidates are lining up to give Britain a kicking, is mysteriously not mentioned anywhere in either of Daniel’s columns, presumably because doing so would undermine his argument.

So – the list of priorities Hannan describes may look rational from a British perspective. Unfortunately, though, the people on the other side of the negotiating table won’t have a British perspective.

Problem number three is this line from the Con Home piece:

“Might it truly be more interested in deterring states from leaving than in promoting the welfare of its peoples? If so, there surely can be no further doubt that we were right to opt out.”

If there any rhetorical technique more skin-crawlingly horrible, than, “Your response to my behaviour justifies my behaviour”?

I could go on, about how there’s no reason to think that Daniel’s relatively gentle vision of Brexit is shared by Nigel Farage, UKIP, or a significant number of those who voted Leave. Or about the polls which show that, far from the EU’s response to the referendum pushing more European nations towards the door, support for the union has actually spiked since the referendum – that Britain has become not a beacon of hope but a cautionary tale.

But I’m running out of words, and there’ll be other chances to explore such things. So instead I’m going to end on this:

Hannan’s argument – that only an irrational Europe would not deliver a good Brexit – is remarkably, parodically self-serving. It allows him to believe that, if Brexit goes horribly wrong, well, it must all be the fault of those inflexible Eurocrats, mustn’t it? It can’t possibly be because Brexit was a bad idea in the first place, or because liberal Leavers used nasty, populist ones to achieve their goals.

Read today, there are elements of Hannan’s columns that are compelling, even persuasive. From the perspective of 2020, I fear, they might simply read like one long explanation of why nothing that has happened since will have been his fault.

Jonn Elledge is the editor of the New Statesman's sister site CityMetric. He is on Twitter, far too much, as @JonnElledge.