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The biggest and most important story in the UK at the moment, full stop, is just how grim the economic picture is. That is true for politics, too. Some thoughts on that, plus, inevitably, the latest on the race to No 10 and what I gathered from spending three hours on the phone this week with Tory members.
Liz Truss and the Moody Blues
The UK is sliding into a 15-month recession and further high inflation according to the Bank of England, which has raised interest rates by 0.5 per cent, the highest increase in 27 years.
Here’s the key paragraph from the Monetary Policy Committee’s latest report:
The labour market remains tight, and domestic cost and price pressures are elevated. There is a risk that a longer period of externally generated price inflation will lead to more enduring domestic price and wage pressures. In view of these considerations, the committee voted to increase bank rate by 0.5 percentage points, to 1.75%, at this meeting.
The bad news is that the MPC has essentially concluded that the UK economy needs both a sharp recession and an increase in unemployment in order to get inflation under control. On the upside, it is good news for fans of highly alarming charts. Here are some of the best (or should that be worst?) from Delphine Strauss’s essential explainer.
The Resolution Foundation has also charted the outlook for our take-home pay, showing that the average post-tax household income will fall by 3.7 per cent across 2022 and 2023. That means households will be roughly £2,000 worse off across the two years:
The politics of this are bad for the UK government, obviously.
There are two consequences which are worth touching on briefly. To begin with, this is the first time since the UK central bank became independent that it has felt the need to reach for this very painful lever, and we should expect some political resistance as a result.
It’s hard to know how seriously to take the suggestions from Liz Truss’s allies about the future and precise shape of the BoE mandate, and the foreign secretary’s insistence that a UK recession should be avoided.
If the polls of the Conservative membership are right — and I see no persuasive case for why we should doubt them — Truss has successfully depicted Rishi Sunak’s budgets and the slowness of the BoE as the twin causes of the UK’s economic malaise. “Recession isn’t inevitable,” insisted Truss in yesterday’s TV debate, promising to reverse Rishi Sunak’s tax raising plans.
And on the broader point about the BoE mandate, it is hard to work out exactly how much of Truss’s positioning on this is about trying to minimise accusations that she is the candidate of higher mortgage payments and looser fiscal policy, and how much is a serious signal about big changes to come.
The second issue is the timing of the next UK general election. When the economy is bad, incumbent governments tend to let a parliament run its full length, in the hope that something will come up.
As I’ve written before, under the terms of the Dissolution and Calling of Parliament Act, which returned the right to call an election to the UK executive and away from the legislature, the absolute latest the next election can take place is January 2025. That provoked a number of furious responses from MPs and party activists of the “I would rather eat glass than campaign over Christmas” variety and the following smart response from one Conservative grandee:
Yes, it would be legal, but Christmas, Epiphany (Orthodox Christmas and you don’t want to upset the Greek Cypriot voters in Barnet and Harrow!), Chanukah. Add on the pressure on primary schools and village halls for Christmas events, local authorities updating the register after the annual canvass and the vagaries of the Christmas post.
Any party that inflicted an election campaign on the public over Christmas would not lightly be forgiven! All in all, I reckon the final realistic date would be early November 2024, with campaigns launched at party conferences.
That assessment feels about right to me. I would note that one reason why political betting sites are chattering about an early election is you can also make a plausible case for going in November of this year. You can see how Liz Truss’s promised emergency Budget cuts taxes, heavily subsidises households through this winter’s increases in energy bills, and creates a shortlived feelgood factor around her government.
The risks to Truss of going to the country in November this year are extremely high. That being said, you can make an absolutely watertight argument that the government’s political position will get worse over time, rather than better.
But if Truss goes to the country early and her majority is slashed to say, 10, or she loses office, no one in the Conservative party is going to thank her on the basis that all the economic indicators suggest the party would have been worse off had they waited until later.
For that reason I think the most likely date of the next election is sometime very late in the winter of 2024. But we shouldn’t rule out that Truss decides that her moment of maximum opportunity is to get a fresh five-year term this autumn, rather than risking an election in a time not of her choosing after several years of bleak economic news.
Are the polls right, though?
Since my last note on Tuesday, Liz Truss has received a twofold boost in the polls: another YouGov poll showing her extending her lead over Rishi Sunak, while ConservativeHome’s unweighted reader panel also shows her well ahead of the former chancellor.
How seriously should we take these? Well, YouGov’s polls of party members have called every election right. However, they underestimated David Miliband’s strength among lay members in the 2010 Labour leadership contest and overestimated Boris Johnson’s appeal to Conservative activists in 2019. In neither case was the error big enough to wipe out the victor’s lead.
As for the ConservativeHome survey, well, to be honest, I would take it about as seriously as the fact that earlier this week I spent about three hours on the phone calling Tory members and found around 60 per cent of the people I spoke to were voting for Truss.
My contacts book, like the ConHome survey, is not weighted to anything, and neither I nor the ConHome team can say with any reliability that our respondents are a representative sample of the party grassroots as a whole. But taken together, they both suggest that YouGov’s polls are about right, give or take.
Remorseless cynic that I am, I take the view that any political campaign worth its salt will try to mislead journalists about how well they are doing, and you should therefore always treat what a campaign is doing as more important as what it is saying. And sure, Truss’s allies will talk about how there must be no complacency and they still have a big fight ahead of them, while Sunak’s campaign claims that they are closing the gap.
But look at what the two campaigns are doing. The Truss camp is sticking to the same core themes that it has had throughout the contest and which are perceived to be the winning formula. Its response to the BoE’s rate rise was to talk about the foreign secretary’s plan for an emergency Budget.
In contrast, the Sunak campaign, has skeetered all over the place: it started as the campaign eschewing immediate tax cuts and has now pledged to cut VAT in the short term. It has vowed to expand the reach of the UK’s counter-terrorism strategy Prevent to include those who “vilify” the UK and its big response to the rate rise was an attack on Liz Truss.
Sometimes politics really is as simple as it looks. I’m inclined to think that the fact Rishi Sunak’s campaign looks like it is desperately trying to find new policy announcements to win more members over and is attacking the other person whenever it can is a sign that his campaign is in trouble and that the polls are about right.
Now try this
Here are two things worth watching.
First, Hit the Road is a film about an Iranian family making a journey across the country. It’s cleverly told from the perspective of the youngest child in the family, in a way that at first feels like it might be excessively cutesy and gratingly twee but is gradually revealed to much more sophisticated. It’s difficult to write about it in a way that does the movie justice without spoiling too much, though Danny Leigh’s review does a very good job of that. All I will say is that it is a very clever, moving and beautifully shot film that I heartily and wholeheartedly recommend.
Not in cinemas but available to stream: The Orville TV series. It’s a highly enjoyable bit of light sci-fi, which starts life as, essentially, “Star Trek with toilet humour” before becoming fun and thoughtful in its second season. It just ended its third season and continues to be a very enjoyable way to spend an evening.
Have a great weekend, however you spend it.
Other top stories today
Source: Financial Times