If we’re past the worst, then no one thought to tell consumers

British households have become more, not less, concerned over the last five years.

At a time of growing optimism among UK policy makers that the worst might be behind us, ASR’s latest Survey of UK Household Finances suggests that the erstwhile engine of the economy, the consumer, is a long way from returning to health. Despite the glee shown in some quarters over the UK economy’s 0.3 per cent growth in the first quarter of this year, 23 per cent of working-age households think the UK is in depression, while a further 45 per cent believe it is in recession. British households have become more, not less, concerned over the last five years, with one in four worried for their job security. This is generating a cautious attitude towards spending and saving decisions that shows no sign of letting up.

Prior to 2007, the UK experienced a rapid rise in household debt relative to incomes, reaching a level that surpassed all other G7 economies. There were three trends underlying this increase. First, the UK saw a substantial rise in income inequality, but one that was not matched by an equivalent disparity in spending habits. Second, the UK was subject to growing regional divergences, with average incomes in London and the South East pulling further away from the rest of the UK. Third, financial innovation allowed greater access to credit; by 2007, 12,000 different mortgage products were available in the UK, with roughly two thirds targeted at ‘credit impaired’ borrowers. Simultaneously, the average loan-to-income ratio among first-time buyers rose from roughly 2½ times to almost 3½. Together, these trends imply young households at the lower end of the income distribution living outside London accounted for a disproportionate share of the rise in debt.

Sure enough, the Household Survey indicates that these are the individuals now under most financial stress. Of those earning less than £15,000 per year, 93 per cent worry about their financial situation and 85 per cent believe they are saving too little. Of those in this income group with outstanding debts, 54 per cent feel they are too high relative to their incomes and 43 per cent have had trouble meeting their interest payments over the last year.

This matters for the macroeconomy, since it is the distribution of debts that determines their sustainability rather than their aggregate size. With credit remaining ‘tight’, fiscal consolidation hitting the regions hardest and youth unemployment running at elevated rates, it is little wonder that the economy has struggled to get back to growth – the UK’s old growth model is broken. Rebalancing is proving to be a slow and painful process.

This difficult backdrop is splintering the voting base away from the three traditional mainstream political parties, and has proved a gift for the insurgent UK Independence Party (UKIP). By far the biggest losers from UKIP’s rise have been Conservatives, who have shed as many as 25 per cent of their 2010 voters to the party. 

Measures that might help those under greatest financial duress, such as reducing the pace of fiscal tightening, are likely to prove unpopular with those remaining faithful to the Tories. According to our survey, 92 per cent of Conservative Party supporters believe that addressing the national debt should remain a priority, and 64 per cent approve of the current government’s handling of the economy. More strikingly, however, it is not clear that such a move would curry favour among those it would be targeted at helping: those struggling to manage their own debts are marginally more inclined to agree that tackling the government’s debts should be a priority. The Tories look damned if they do and damned if they don’t.

A chasm has opened up between Tory supporters and the rest. Just 36 per cent of Conservatives say they are worse off since the last election, compared with 64 per cent of other voters. A striking feature of the survey is just how closely aligned UKIP, Labour and non-affiliated voters look in many respects (see chart 1) and how far from the rest the average Tory supporter is. In the absence of economic recovery, the Conservative Party will face an uphill struggle to win back swing voters.

All that said, there could be a chink of light for the Conservatives. Our survey indicates a growing belief that house prices will rise over the coming 12 months; on balance, 17 per cent think home values are more likely to rise than fall. The long-term efficacy of the recently-announced Help to Buy scheme seems questionable, but it already appears to be stirring up interest in the housing market. The motivation behind this seems quite simple: historically, there has been a strong correlation between house prices and consumer confidence in the UK. It seems like a gamble, but with few alternative options, it is a gamble worth taking.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

George Osborne arrives to attend a press conference at the conclusion of the IMF mission to the UK. Photograph: Getty Images.

Dominic White is chief European economist and Richard Mylles is a political risk analyst at Absolute Strategy Research

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Jeremy Corbyn supporters should stop excusing Labour’s anti-immigration drift

The Labour leader is a passionate defender of migrants’ rights – Brexit shouldn’t distract the new left movement from that.

Something strange is happening on the British left – a kind of deliberate collective amnesia. During the EU referendum, the overwhelming majority of the left backed Remain.

Contrary to a common myth, both Jeremy Corbyn and the movement behind him put their weight into a campaign that argued forcefully for internationalism, migrants’ rights and regulatory protections.

And yet now, as Labour’s policy on Brexit hardens, swathes of the left appear to be embracing Lexit, and a set of arguments which they would have laughed off stage barely a year ago.

The example of free movement is glaring and obvious, but worth rehashing. When Labour went into the 2017 general election promising to end free movement with the EU, it did so with a wider election campaign whose tone was more pro-migrant than any before it.

Nonetheless, the policy itself, along with restricting migrants’ access to public funds, stood in a long tradition of Labour triangulating to the right on immigration for electorally calculated reasons. When Ed Miliband promised “tough controls on immigration”, the left rightly attacked him.  

The result of this contradiction is that those on the left who want to agree unequivocally with the leadership must find left-wing reasons for doing so. And so, activists who have spent years declaring their solidarity with migrants and calling for a borderless world can now be found contemplating ways for the biggest expansion of border controls in recent British history – which is what the end of free movement would mean – to seem progressive, or like an opportunity.

The idea that giving ground to migrant-bashing narratives or being harsher on Poles might make life easier for non-EU migrants was rightly dismissed by most left-wing activists during the referendum.

Now, some are going quiet or altering course.

On the Single Market, too, neo-Lexit is making a comeback. Having argued passionately in favour of membership, both the Labour leadership and a wider layer of its supporters now argue – to some extent or another – that only by leaving the Single Market could Labour implement a manifesto.

This is simply wrong: there is very little in Labour’s manifesto that does not have an already-existing precedent in continental Europe. In fact, the levers of the EU are a key tool for clamping down on the power of big capital.

In recent speeches, Corbyn has spoken about the Posted Workers’ Directive – but this accounts for about 0.17 per cent of the workforce, and is about to be radically reformed by the European Parliament.

The dangers of this position are serious. If Labour’s leadership takes the path of least resistance on immigration policy and international integration, and its support base rationalises these compromises uncritically, then the logic of the Brexit vote – its borders, its affirmation of anti-migrant narratives, its rising nationalist sentiment – will be mainlined into Labour Party policy.

Socialism in One Country and a return to the nation state cannot work for the left, but they are being championed by the neo-Lexiteers. In one widely shared blogpost on Novara Media, one commentator even goes as far as alluding to Britain’s Road to Socialism – the official programme of the orthodox Communist Party.

The muted and supportive reaction of Labour’s left to the leadership’s compromises on migration and Brexit owes much to the inept positioning of the Labour right. Centrists may gain personal profile and factional capital when the weaponising the issue, but the consequences have been dire.

Around 80 per cent of Labour members still want a second referendum, and making himself the “stop Brexit” candidate could in a parallel universe have been Owen Smith’s path to victory in the second leadership election.

But it meant that in the summer of 2016, when the mass base of Corbynism hardened its factional resolve, it did so under siege not just from rebelling MPs, but from the “Remoaners” as well.

At every juncture, the strategy of the centrist Labour and media establishment has made Brexit more likely. Every time a veteran of the New Labour era – many of whom have appalling records on, for instance, migrants’ rights – tells Labour members to fight Brexit, party members run a mile.

If Tony Blair’s messiah complex was accurate, he would have saved us all a long time ago – by shutting up and going away. The atmosphere of subterfuge and siege from MPs and the liberal press has, by necessity, created a culture of loyalty and intellectual conformity on the left.

But with its position in the party unassailable, and a radical Labour government within touching distance of Downing Street, the last thing the Labour leadership now needs is a wave of Corbynite loyalty-hipsters hailing its every word.

As the history of every attempt to form a radical government shows, what we desperately need is a movement with its own internal democratic life, and an activist army that can push its leaders as well as deliver leaflets for them.

Lexit is no more possible now than it was during the EU referendum, and the support base of the Labour left and the wider party is overwhelmingly in favour of free movement and EU membership.

Jeremy Corbyn, John McDonnell and Diane Abbott are passionate, principled advocates for migrants’ rights and internationalism. By showing leadership, Labour can once again change what is electorally possible.