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Why the markets are bullish about the Tories’ chances

January 4th, 2014

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Are the polls or the punters wrong?

If the polls are to be believed, Labour is on course for a comfortable victory in 2015.  As Mike has pointed out in several related posts over the last few weeks, the voters who backed the Lib Dems in 2010 and have since switched to Labour seem firm in their intention and are more likely to vote than the average.  Add in the effect of UKIP and the fact that Labour needs a much smaller lead over the Tories in votes to win a majority in the Commons than vice versa and it should be game over.  Yet the bookies only give Labour about a 60% shot of being the largest party, never mind winning outright.  Why?

As mentioned in last night’s thread, it could simply be people – rich Tories in this case – backing their opinions rather than the evidence (if so, there is a lot of value in Labour’s price).  What then are they basing their thinking on, and is it wishful thinking or do they have a case?

The first answer is the economy, stupid.  It was a huge issue in 2010 and it’s still big now: the Ipsos-Mori issues index still has the economy as the number one issue facing Britain cited by respondents, with unemployment and inflation also in the top five.  The salience isn’t as strong as it has been but it’s still hugely important.  Government supporters will say that their policies have been proven right by events, that growth is firmly established, unemployment and inflation are falling and living standards should start to rise before long.  Against which, they’ll claim Labour got it wrong in government, wrong in opposition and those failings will be brutally exposed come the election.

The second answer is Ed Miliband.  Miliband had a good conference and has shown a Gordon Brown-like ruthlessness at positioning and backroom politics.  Even so, his personal ratings are dire: in the most recent YouGov survey to ask the question, just 3% thought him a natural leader; no more than 6% thought him strong, good in a crisis, decisive or charismatic either.  While Cameron’s scores aren’t anything to write home about too, they are consistently better.  If the next election campaign is as leader-focussed as the last one, that should have an impact.

Thirdly, and relatedly, there’s the question of swingback.  This has been a very unusual parliament in many ways and one is that there’s been remarkably little Con/Lab movement.  There has, however, been a great deal of churn involving the Lib Dems and UKIP.  Despite the apparent certainty of the LD-Lab switchers to stay with their new preference and the continued strong UKIP performance, current polling has to be affected by the existence of the coalition.  The next election will be fought by the parties separately.  In addition, the spectres of 1970, 1992 and 2011 still hang in the air when swings away from Labour either occurred late on or were not picked up in the polls.  In each case, economic competence and/or leadership questions were significant.

Fourthly, there’s the Scottish referendum.  Most (including me) expect this to result in a No vote, which would be unlikely to have much impact on the 2015 result.  However, if there’s a turn-up and it’s a Yes – rated a little under a 20% chance by bookies – that would severely dent Labour’s prospects, both in the election itself (where the SNP could be expected to make major gains), and after independence with the loss of all the Scottish Labour MPs.

Finally, gaining seats is hard.  Baxtering opinion polls is one thing but putting in the physical effort to win seats from the incumbent is no easy task.  Again, the polls would suggest the opposite, with net Con-Lab swings larger than the average but due to the boundaries question, Conservative campaigning was put on hold for the first half of the parliament.  Those swings might change once the campaign in earnest gets underway.  Since the end of WWII, only four elections have seen a party make more than seventy net gains: 1950, 1970, 1997 and 2010.  It’s certainly not out of the question but nor should it be anything like taken for granted.

Good prediction is always a combination of an accurate analysis of what we know and an instinctive judgement for what we don’t.  The present polls of voting intention point firmly in one direction only but the game remains much more open than that.  On the question of polls or punters, I think the punters are much closer to the mark.

David Herdson