16 May 2017

Does a pay cut change the way you vote?

Theresa May decided to call a snap election during a time of falling real wages. Is that wise?

Amid the cacophony of the general election campaigns, Torsten Bell of the Resolution Foundation has noted something strange.

Although politicos have been talking up the idea of an early election ever since she was anointed Prime Minister, Theresa May’s decision to call one comes at an extremely unusual time.

Pay is falling sharply, and this has only coincided with a general election five times before – in 1910, 1922, 1923, 1945 and 2010. In all those years, the ruling party lost seats. In 1945, voters were fed up enough to kick out the war hero Winston Churchill in favour of the Labour party. In 2010, New Labour’s 13-year grip on power ended.

As Bell observes, this is probably no accident. Prime Ministers call elections (even after fixed-term parliaments have been passed into law, as we recently discovered), and “Prime Ministers don’t do the whole Turkey and Christmas thing, unless five years is up and they have to”.

The correlation between household income and voting intention is well-documented, and relatively easy to track. The links between wage growth and how you vote are less well understood. However, the Brexit vote is already shining a spotlight on this area.

The voters most frustrated with the European Union were concentrated in areas where wages had stagnated, according to research commissioned by the Financial Times. In one borough, Castle Point in Essex, where Ukip took 31 per cent of the vote share in 2015, real median wages had dropped by 13 per cent since 1997.

This is not a hard and fast rule – research by the Resolution Foundation found that some areas with big pay boosts also voted for Brexit, and geographical inequality was more of a factor. But a study of local elections in the noughties by Declan Turner of Leeds University found that as real wages fell, support for the extreme right rose.

Whether or not an economist will ever provide definitive proof of the link between wage growth and voting intention, one thing is clear – voters have a few concrete indicators of how the economy is working, and whether or not they get a pay rise is one of them.

Meanwhile, Brexit is starting to bite. Thanks to the collapse in sterling, inflation is at 2.7 per cent, the highest level since September 2013. As a result of rising inflation, the Resolution Foundation expects real pay to have fallen by 0.3-0.6 per cent in the three months to April. Meanwhile, benefits for working age people are frozen, including tax credits that top up low wages. In short, if pay is falling now, it’s likely to fall harder and faster in the near future.

Perhaps May’s decision to call a snap election isn’t so odd after all.