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19 October 2016

Theresa May says her people are the “just managing“. But Brexit could hit them hardest

The new squeeze in living standards is a political risk for the Prime Minister. 

By George Eaton

David Cameron used to lament to Conservative MPs that he lacked “a people”. There was no group of voters indelibly associated with him, no equivalent of Margaret Thatcher’s “Essex Man” or New Labour’s “Worcester Woman”.

Since entering No 10, Theresa May has been clear about who her people are: the “just managing”. They are in employment but afflicted by job insecurity and inadequate wages. They own a home but struggle with mortgage repayments. They are socially conservative and economically interventionist. They have few resources to draw on in bad times.

One of the Prime Minister’s aspirations is to realign a political debate that is typically centred around the rich and the poor. Both Ed Miliband (“the squeezed middle”) and Nick Clegg (“alarm clock Britain”) gestured towards those in between. Yet neither did so as unambiguously as May. “If you’re earning 19, 20, 21,000 pounds a year, you’re not rich,” she declared in a speech on 9 September. “You’re not well off. And you should know you have our support, too.”

In Downing Street, May has surrounded herself with aides who grew up in “just managing” families. Her joint chief of staff Nick Timothy is the son of a Birmingham steelworker. Neil O’Brien, one of the few Cameron-era staffers to survive, attended a comprehensive school in Huddersfield.

O’Brien used to be the head of the right-leaning think tank Policy Exchange, which in 2015 published a report on the “just about managing”. It found that these voters (“overlooked but decisive”) accounted for more than half of the electorate in marginal seats. In 2015, they were responsible for Conservative gains such as Bolton West, Derby North, Gower and Telford. If the Tories are ever to win another landslide victory, it will be by attracting these swing voters.

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In the EU referendum, the “just managing” voted decisively for Brexit. However, they now risk reaping its economic consequences. The pound’s rapid depreciation has pushed CPI inflation to 1 per cent, its highest level since November 2014. Next year, forecasters expect price rises to reach 3 per cent. Rather than the affluent, it is the “just managing” who will be squeezed. Wage growth, non-existent in the post-crash years, remains below historic averages. Working-age benefits, such as tax credits, are expected to remain frozen until 2019-20.

Because of this, the Institute for Fiscal Studies forecasts that 11.5 million families will lose an average of £360 a year (£100 more than expected in March). If the more affluent who receive only child benefit are excluded from the analysis, the average loss increases to £470.

By the end of Cameron’s premiership, the political limits of austerity had been reached. Even with a working majority of 16, the Conservatives could not impose new cuts to tax credits and disability benefits. After entering No 10, May was quick to soften austerity. George Osborne’s Budget surplus target was abandoned. Damian Green, the Work and Pensions Secretary and veteran Tory “wet”, announced that there would be no additional welfare cuts.

Yet in a colder economic climate, competing interests are clashing. May has long argued that loose monetary policy (ultra-low interest rates and quantitative easing) has harmed the “just managing” by increasing inflation and house prices. “A change has got to come. And we are going to deliver it,” she vowed in her Conservative conference speech in Birmingham.

These remarks were inevitably regarded as a threat to the Bank of England’s independence. “We are not going to take instruction on our policies from the political side,” Mark Carney, the bank’s governor, subsequently warned. He also signalled that he would tolerate above-target inflation in order to support growth and employment.

A May ally recently told me that the government would seek to “compensate” low-earners for the effects of monetary activism in the Autumn Statement on 23 November. Yet the Prime Minister’s room for manoeuvre is limited. Although she is no longer targeting a Budget surplus in 2020, No 10 emphasises that she remains committed to deficit reduction. “We’re not about to change policy in this area,” a source said of demands for the freeze on working-age benefits to end.

During the EU referendum campaign, the Leave side promised the “just managing” an extra £350m a week for the NHS and an end to VAT on fuel bills. It was nonsense, of course. Rather than this largesse, voters now face years of cuts and freezes to public services and pay.

The unrest between the Chancellor, Philip Hammond, and the cabinet Brexiteers reflects this risk. The political imperative of controlling immigration is clashing with the economic imperative of preserving growth. “The British people did not vote on 23 June to become poorer,” Hammond declared in the most telling line of his conference speech. But they did vote, he immediately added, to “repatriate our sovereignty” and “control our borders”.

Politicians are frequently accused of wanting to have their cake and eat it. What is less often noted is that voters do, too. May has sided with the “just managing” as she lays the ground for an act, Brexit, that will almost unavoidably harm their interests. Having taken ownership of the referendum result, the Prime Minister cannot transfer the blame to others.

Theresa May leads a government that is committed to controlling immigration, increasing living standards and reducing the deficit. If she can deliver all three, she will be an even luckier politician than her vanquished opponents suggest. More likely, she will have to decide what happens when the “just managing” can manage no more.

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This article appears in the 19 Oct 2016 issue of the New Statesman, Brothers in blood