“All political history shows that the standing of a Government and its ability to hold the confidence of the electorate at a General Election depend on the success of its economic policy.” So said Labour’s Harold Wilson, who, as someone who led his party to four victories between 1964 and 1974, knew what he was talking about.
Back in Wilson’s day, analysts were rather more confident that there was a clear relationship between how the economy was doing and which side would win. Indeed, some even argued that just two indicators – the rate of unemployment and the rate of inflation – told us all we needed to know.
Their confidence was understandable. After all, in the era of Keynesian demand management, governments controlled not only fiscal policy but also interest rates and could therefore do a lot to align the electoral and the economic cycle.
Sometimes they got it right and, like the Tories in 1955 and 1959 and Labour in 1966, they were rewarded with landslides. Sometimes they got it wrong. In the run up to 1964, Conservative Chancellor Reggie Maudling simply ran out of time before his “dash for growth” could trump the “pay pause” instituted by his predecessor Selwyn Lloyd. In 1970 – the only election he lost – Wilson, after squandering the nation’s trust by devaluing sterling, went too early, believing that the post-devaluation squeeze on real wages imposed by Chancellor Roy Jenkins would be forgotten as growth returned.
From the 1980s onwards, psephologists were acknowledging that even when things like interest rates were added to their models, “objective” economic indicators were no longer enough to explain election results. The key to prediction now appeared to be economic expectations.
There was – and still is – some debate about whether forecasters should be focusing on voters’ (egocentric) views on their own situation, or their (sociotropic) sense of how the country as a whole is doing. But there was agreement that what mattered now was whether they felt that things were moving in the right direction. The return of economic optimism helped to explain why Margaret Thatcher was able to win a resounding victory in 1983 despite massively high unemployment and before inflation could really said to have been properly tamed – and why John Major won in difficult economic times in 1992.
Blair’s landslide victory in 1997, however, presented experts with a problem. Economically, things had begun to look up not long after sterling crashed out of the ERM. Yet this turned out to be the archetypal “voteless recovery”.
The solution to this conundrum soon became apparent – and remained important throughout New Labour’s 13 years in power. Yes, the economy mattered. And so did expectations. But what was also crucial were voters’ views on the respective competence of the parties vying for power.
Labour wasn’t elected in 1992 because people still didn’t trust it to handle the economy. The Conservatives lost in 1997 because Blair and Brown worked hard to rebuild that trust – and because Major and Lamont had so blown their party’s reputation for managing the economy that voters refused to give Ken Clarke the credit he deserved for the post-ERM upturn.
Likewise, while many economists praised Brown and Darling’s handling of the impact of the global financial crisis, the electorate, it turned out, was in no mood to listen. That said, voters weren’t much impressed by the uncertain response to the crisis coming from Cameron and Osborne – and too many of them were worried about the damage which the Tories’ promised “age of austerity” might do to public services to entrust them with an overall majority.
The Conservatives have tried as hard as possible since 2010 to limit that damage, at least to popular services like health, education and pensions. They will also go into the 2015 election with a handy lead over Labour when it comes to trust and competence. Meanwhile, most of the classic “objective” indicators also favour them: GDP is growing; unemployment is coming down; inflation and interest rates are low.
On the other hand, real wage growth remains anaemic, while the lingering impact of the recession is still palpable – and not just for the very poorest among us. Just as importantly, polls suggest that many people believe that any recovery has occurred in spite of rather than because of action that the government has taken. As a result, economic optimism may be rising, but it may not reward the Tories with anywhere near as many votes as they clearly think they deserve. The economy probably does decide elections. But exactly how it does so is far more complicated than many of us imagine.