We should thinking more about the range of possibilities
I was struck at the politicalbetting meet in Ilkley on Monday how much consensus there was about the likely result of the next election. The great majority expected Labour as the largest party in another hung parliament. That’s the view of the betting markets too: Labour is best priced at 9/10 with bwin to win most seats (more generally 5/6 or 4/5), while the Tories are odds against only with Ladbrokes (11/10), and more generally evens. To form an overall majority however, you can get 2/1 for Labour and 11/4 with the Conservatives.
Those predictions were essentially central-case scenarios; they’re where we’d set the line if we were making an under/over market. What we didn’t say was how much margin of error we felt there was, which is to say how confident we were in hitting that relatively small seats band. For those who are, Labour is 7/2 for both 276-300 and 301-325 seats, which is still odds-against even combined (and at the lower end of 276-300, the Conservatives would probably be the larger party too).
As has been pointed out many times before on pbc, the markets for the overall totals don’t necessarily match those for the individual seats and generally, if you’re inclined towards a favourable Tory result, you’d be better with the constituencies; good for Labour equals the nationals. That said, individual seats are much more susceptible to local factors so do the research.
Of course, neither the markets nor expectations from the get-together match up with current polling either. If the June pbc polling average translated into the final result, Labour would have 338 MPs and a viable working majority (according to UKPR). The 326-350 band is 9/2. It wouldn’t take much to move up into the 351-375 band, returning 8/1.
So why such generous returns for what appears quite a strong likelihood? Two words answer that. The first, discussed frequently here, is leadership. The second is simply ‘events’. There are many known unknowns between now and next May, any of which could trip Labour up to a greater or lesser extent. To name but a few:
- Will Scotland vote to secede? If so, how will that affect politics both across the UK and in Scotland in particular? If not, will that burst the SNP bubble and if so, to whose benefit?
- Will there be debates in the General Election campaign? If so, which parties will be in them?
- Will the coalition remain intact through until May? If not, when will the divorce be and will it be amicable or acrimonious?
- Will UKIP be able to hold on to the support base they’ve built? If not, which part(s) of their coalition will leak most and to whose benefit?
- What will the reshuffle, assumed to be happening next week, mean for policies and personnel in the government parties?
- Will the economy keep growing at its current pace? If so, will it feed into any feel-good factor? Even if it does, might the very fact of recovery reduce the salience of the economy as a dividing issue?
- How well will the NHS manage through this coming winter?
- At what point will Labour start producing a more comprehensive policy platform, and will it stand up better than when the Tories revealed theirs, bit by bit, in 2010?
Beyond which, there are a whole host of unknown unknowns. It’s possible to construct nightmare and dream scenarios for both leading parties based on the outcomes of those variables (the variables themselves frequently being contingent on each other). Put another way, there’s still plenty of margin of error.
As a rule of thumb, when a lot of people expect the same thing, markets overstate the probability of it happening resulting in the value lying elsewhere, namely bets implying either Con largest party or a Lab overall majority.