When inflation bites, support for the Tories will further erode
Inflation has hit its highest level in a decade. For most people, prices are rising faster than wages. Energy bills are soaring. The Bank of England is poised to raise interest rates next month. Personal taxes are going up in the spring. A tough winter looms.
It’s not hard to see why Boris Johnson has hit the panic button with his plan to ban MPs from holding consultancy jobs. On its own, the government could perhaps ride out a sleaze scandal on the grounds that voters think (wrongly) that politicians are all as bad as each other. But sleaze plus a struggling economy is a potentially toxic mixture, especially since a long period of one-party rule makes voters susceptible to that most powerful of political messages: time for a change.
Objectively, things could hardly look more promising for Labour. A government that will spend the next year trying to explain away falling living standards and record NHS waiting lists should present the easiest of targets. Yet the opposition doesn’t give the impression that it expects to win the next election – instead, it displays a lack of self-confidence that is both irrational and potentially self-fulfilling.
Sure, there are reasons not to get carried away. Labour is neck and neck in the polls with the Conservatives, but was streets ahead in the 1990s when Tony Blair was leader of the opposition. Unlike then, focus groups say they don’t really know what Labour stands for under Keir Starmer. If the prime minister was able to survive the mishandling of the pandemic, then why should he not be able to survive a midterm sleaze scandal?
All that is obviously true. But enough of such pessimism. There is a more optimistic case to be made. For a start, the public mood is shifting after a period in which voters cut the Conservatives an excessive amount of slack. Britain had one of the world’s worst per capita death rates from Covid-19 but – in large part due to the emergency economic support package put in place by the Treasury – Johnson avoided being blamed.
After spending hundreds of billions of pounds preventing mass unemployment, chancellor Rishi Sunak is now providing less help. The furlough has already come to an end, as has the stamp duty holiday for homebuyers and the £20 a week uplift to universal credit. Some limited support for the working poor was announced in last month’s budget but, in general, measures brought in during the early months of the crisis in 2020 have either already gone or are being phased out.
The economy is still making up the ground lost during the lockdowns but during the course of the next few months will once again be recognisable as the low-growth, low-productivity, low-unemployment model that existed pre-pandemic. Yet there’s one key difference: this time Britain will face an annual inflation rate of 5% or more.
It is, of course, possible that workers will meekly accept a cut in their standard of living, and there are those who say that culture-war issues matter more in shaping voting patterns these days. But traditionally, governments become less popular when real (inflation-adjusted) incomes are falling, and there’s no reason to imagine this pattern has changed.
Sunak’s response to the latest costof-living figures was to boast about the £4bn he’s spending to mitigate the impact of rising prices on households. This too is telling because it demonstrates how the Conservatives have filched ideas from the left for their economic strategy.
Ed Balls, when shadow chancellor in 2011, said austerity would be a disaster – and now Johnson agrees with him. The trade unions played a crucial role in developing the furlough scheme, which effectively nationalised a large chunk of the workforce. Surviving the pandemic and meeting manifesto commitments to level up have forced the Tories to become a party of big government, and the pressures to spend more look certain to grow.
The crisis of confidence on the left is not new and it is not confined to Britain: since the collapse of the Berlin Wall social democratic parties have been struggling to redefine themselves. But it should not be that hard: for a start, the right has been going through its own existential crisis since the financial crash. The heyday of unfettered free markets came to an end with the collapse of Lehman Brothers in 2008.
The view that globalisation or capitalism are unstoppable forces has to be resisted, because that is clearly not the case. In areas such as tackling climate change or cracking down on tax avoidance by multinational corporations, a more interventionist approach is now widely accepted – and the ideas for reform are coming from the left, not the right.
That said, Labour still has to convince voters that it has answers to the issues that concern them: paying the bills, job security and decent public services among them. Starmer and his shadow Treasury team are rightly making this a priority.
Finally, the left needs to remember its own history. Labour’s big victories have come not when it tells people how bad things are, but when it shows how much better they could be. The spike in inflation will give the party a chance to be heard: it must show it has a vision for the future that people can believe in.
Larry Elliott is the Guardian’s economics editor