Bill Jamieson: ‘It’s the economy, stupid’

The Dunfermline by-election for Holyrood saw a slight ebb in SNP support with a swing to Labour. Picture: PA
The Dunfermline by-election for Holyrood saw a slight ebb in SNP support with a swing to Labour. Picture: PA
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The vagaries of fiscal ups and downs have little impact on whether a government stands or falls, writes Bill Jamieson

Arguably the greatest myth in politics today is the assertion that “it’s the economy, stupid”. It elevates the belief that poor economic performance will condemn an administration to defeat and, as a corollary, that an improving economy will sustain a government in office.

Today we are seeing a significant and sustained recovery. Business and consumer confidence is on the up. Numbers in work are at record levels. Mortgage lending has sharply improved. House prices are rising. And there are record numbers of SMEs in Scotland – almost 341,000 employing 1.1 million. The 0.8 per cent growth rate in the third quarter is the fastest for three years and the first time since 2007 that the UK has had two consecutive quarters of above-trend growth.

Pundits now predict that growth will hit 3 per cent in 2014 – a rate unthinkable at the start of this year. Even the lugubrious Fraser of Allander Institute, riddled with doubt that this non-Keynesian induced recovery has unfolded at all, has raised its GDP forecast for this year to 1.3 per cent while for next year it is now forecasting growth of 1.8 per cent against 1.6 per cent previously. Grudging barely begins to describe it.

Yet little good it has done the Westminster coalition. The latest YouGov voting intention figures show the Conservatives at 31 per cent, Labour at 40 per cent and the Liberal Democrats at 9 per cent – still trailing Ukip by three percentage points. Despite the cascade of good economic news, it is the largest Labour lead shown since the start of the month.

In Scotland, of course, it is different. The economy story has taken second place to the independence referendum, and that dominance is set to intensify in the months ahead. But even here there is evidence, if not of Labour resurgence, then of a slight ebbing in support for the SNP which has claimed a hand in bringing about economic improvement. The Dunfermline by-election for Holyrood saw a swing to Labour (10,275 votes) from the SNP (7,402), with the Conservatives polling just 2,009. The swing to the Tories of 1 per cent showed, according to candidate James Reekie, that the party was offering a credible alternative to the two main parties. He must be on substances.

Now it may be that the recovery has not been evident long enough, or that voters have developed an instinctive distrust of official figures. But improving labour market data and a stream of upbeat business confidence surveys suggest that this is no rogue reading.

But Prime Minister David Cameron and his chancellor George Osborne are as yet enjoying little political benefit from an economic performance that, presented as an expert forecast less than 12 months ago, would have been laughed out of court.

Yet were politics really a function of “the economy” – specifically employment growth and business and household confidence – the parties in office should surely now be gaining rather than lagging even further behind the opposition.

It would not be the first time that the mantra “it’s the economy, stupid” has proved deceptive. Between 1994 and 1997 the economy enjoyed an upturn, unemployment fell and house prices were rising. But the Conservatives went on to suffer a landslide defeat in the historic 1997 election. In 2009-10 the economy came close to collapse but the Conservatives were unable to secure an overall majority over Labour and had to go into coalition with the Liberal Democrats. On the continent, European governments with quite credible growth performances have frequently tumbled to defeat.

Labour supporters might argue that their party’s consistent lead in the polls – defying their leader Ed Miliband’s poor personal rating – is due to coalition “austerity” and public spending cuts. But YouGov surveys of voter attitudes do not bear this out.

Its latest poll findings suggest that 40 per cent of people think the government’s cuts are good for the economy, 39 per cent bad. Just 38 per cent think the cuts are too deep, 41 per cent think they are right (28 per cent) or too shallow (13 per cent). A majority – 55 per cent – think the cuts are necessary, 29 per cent believe they are unnecessary.

So what’s going on? If faster growth, rising house prices, improved order books, brighter job prospects and a broadly acceptable programme of public expenditure savings are not shifting the political needle towards the Conservatives, is Labour on course for a 2015 election triumph, despite the popular wisdom of “it’s the economy, stupid”?

The problems for the Conservatives are manifold. According to the latest YouGov survey, most people are unconvinced that Britain’s economy is in fact growing at all, and only 22 per cent say it is growing in their own area. Even though Scotland has been showing, on Q2 data, a faster growth rate than the UK and a higher percentage level of numbers in work, households are not enjoying a “feel good factor”. Falling real incomes – wage growth lagging the inflation rate – have put paid to that.

Here the rises in household energy bills have strongly reinforced the sense that voters are not gaining from the upturn but are in reality worse off. Some 47 per cent now expect that their households will be worse off a year from now. Four weeks ago optimists outnumbered pessimists by 55-41 per cent.

Labour leads the Conservatives as the party trusted “to deal with the cost of living” (though both parties are humbled by the response of “none of them”, which scores 37 per cent. A baleful fatalism has settled across millions of voters so that no party is really able to improve their fortunes.

All this said, there is room for improvement in the government’s standing should growth be maintained, allowing Mr Osborne a modicum of tax cuts in the budget next spring: the budget deficit is set to come in lower than the Office for Budget Responsibility forecasts. So it is not “growth” or “the economy, stupid” alone that will lift the coalition’s fortunes.

In the sardonic summation of YouGov chief Peter Kellner: “All the government needs to do is ensure that steady growth is maintained and spreads to all parts of Britain and feeds through to rising living standards; and ministers must avert any more nasty shocks like the rise in energy prices and persuade voters that the Conservatives are on the side of normal people, not just the rich and safeguard the quality of the key public services such as schools and hospitals and translate steady growth not only into more jobs but enough decently-paid full-time jobs and make the Help to Buy scheme work for young couples trying to get on the housing ladder without inflating a house price bubble.”

Simple, really. But not quite as simple as “it’s the economy, stupid”. The task of politics does not stop at improving statistics, but remains the dark art it has always been: converting economic performance into a perception of genuine uplift in the day-to-day lives of voters.