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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5 things Labour has blamed for the Copeland by-election defeat

Other than Labour, of course. 

In the early hours of Friday morning, Labour activists in Copeland received a crushing blow, when they lost a long-held constituency to the Tories

As the news sank in, everyone from the leadership down began sharing their views on what went wrong. 

Some Labour MPs who had done the door knock rounds acknowledged voters felt the party was divided, and were confused about its leadership.

But others had more imaginative reasons for defeat:

1. Tony Blair

Shadow Chancellor John McDonnell told Radio 4’s Today programme that: “I don’t think it’s about individuals”. But he then laid into Tony Blair, saying: “We can’t have a circumstance again where a week before the by-election a former leader of the party attacks the party itself.”

2. Marginal seats

In a flurry of tweets, shadow Justice secretary Richard Burgon wanted everyone to know that Copeland was a marginal seat and always had been since it was created in 1983.

Which might be true, but most commentators were rather more struck by the fact Labour MPs had managed to overcome that marginality and represent the area for eighty years. 

3. The nuclear industry

In response to the defeat, Corbyn loyalist Paul Flynn tweeted: “Copeland MP is pro-nuclear right winger. No change there.” He added that Copeland was a “unique pro-nuclear seat”. 

In fact, when The New Statesman visited Copeland, we found residents far more concerned about the jobs the nuclear industry provides than any evangelical fervour for splitting atoms.

4. The political establishment

Addressing journalists the day after the defeat, Corbyn said voters were “let down by the political establishment”. So let down, they voted for the party of government.

He also blamed the “corporate controlled media”. 

5. Brexit

Corbyn's erstwhile rival Owen Smith tweeted that the defeat was "more evidence of the electoral foolhardiness of Labour chasing Brexiteers down the rabbit hole". It's certainly the case that Brexit hasn't been kind to Labour's share of the vote in Remain-voting by-elections like Richmond. But more than 56 per cent of Cumbrians voted Leave, and in Copeland the percentage was the highest, at 62 per cent. That's an awful lot of Brexiteers not to chase...

I'm a mole, innit.