Will 2015 be more like 1983 or 1997?
Since speculation of a triple-dip recession was put onto the backburner with the modest growth recorded in the first quarter of the year, the preponderance of the economic stats have pointed to the embedding of a steady, if unspectacular, recovery.Â The employment figures this last week were as good an example as any: jobs were up, unemployment was down and earnings are still failing to maintain pace with prices.
To some extent, that combinationâ€™s not too surprising.Â The fact that wages havenâ€™t increased too rapidly is one reason unemployment hasnâ€™t risen much higher.Â On the other hand, pre-recession earnings â€“ or at least, income â€“ were greatly boosted by piling up private debt and a decline in real wages represents a move to more sustainable incomes.Â What is doesnâ€™t represent, however, is a happy state of affairs for the nation.
Whatâ€™s more, even if there arenâ€™t to be any more hiccups in the recovery â€“ and thatâ€™s a big â€˜ifâ€™, assuming that the Eurozone crisis is predominantly over, that thereâ€™ll be no new commodity price shocks, or other Black Swan event/s â€“ the joyless nature of it seems here to stay for some years at least, and certainly until well after the general election.Â All parties accept that thereâ€™s a structural government deficit to be closed, meaning more austerity, and as normal service is resumed, we can expect interest rates to start climbing back from their centuries-low level.
One aspect of the 1990s recovery thatâ€™s been remarked upon was its voteless nature: the economy improved but the fortunes of the Conservative government didnâ€™t.Â Actually, thatâ€™s not entirely true.Â The Conservatives did claw back some of their vote share by 1997 from their disastrous mid-term local and European results, and in the polls, which while methodologically suspect, were at least likely to be consistent within their own series.Â Even so, the fact remains that after five years of growth, the Tories took a hammering.Â Can we expect the same this time, given the lack of a feel-good factor?
Not necessarily.Â There were many other reasons for the 1997 defeat, from sleaze to splits over Europe to a feeling that the Conservatives had run out of steam after eighteen years.Â There was also the small matter of Tony Blair as leader of the opposition.Â Some of those aspects are, of course, going through more than a bit of a repeat this time round; others arenâ€™t.Â In particular, Labour remains tainted by the recession and resultant austerity in a way that Blairâ€™s party wasnâ€™t.
Perhaps the most important difference though is in the blame and credit game.Â Itâ€™s true that there was good growth through the nineties but that was in no small part down to the boost the economy received from the lower interest rates and more favourable exchange rate enjoyed after Sterling was ejected from the ERM; not a policy the government could take much credit for.Â By contrast, this time, as Norman Lamont put it, it might be hurting but at least itâ€™s working (for example, in contrast to the main Eurozone countries).
If thatâ€™s so, you might say, why then does George Osborne lag Ed Balls in the ratings?Â Partly thatâ€™s down to the unforced political error of cutting the top rate of tax, which whatever the economic merits, sent entirely the wrong message about all being in it together.Â More of it though is probably due to the fact that for three years, the austerity policy hadnâ€™t noticeably delivered as the economy continually flirted with further bouts of recession.Â There is still plenty of time for that to change.
There is precedent too for the opposite of a joyless recovery, namely the government getting credit despite the difficult times.Â 1992 was one obvious case but 1983 might be an even better one.Â That election was of course greatly affected both by the Falklands effect and the SDP split but even before the Falklands, the Conservative vote share was recovering as the country emerged from recession (despite the continuing high unemployment).Â A further parallel is that then, as now, many voters abandoned both Labour and the Tories in mid-term opinion polls for a new political phenomenon, though that star had waned significantly by polling day.Â Even without the Falklands, Thatcher may well have been heading for re-election given mistrust of the opposition and the belief among enough that while the medicine was tough, it was also necessary.
That core debate about competence is critical, and remains to be won by either side (and for these purposes, if not much else, the Lib Dems are with the Tories and UKIP with Labour, as government and opposition respectively).Â Thatâ€™s partly about personality, itâ€™s partly about past delivery, but itâ€™s also about policy: what, for example, is Labourâ€™s Plan B, how would it be funded, and is it the shamefully neglected policy necessary for recovery or is it symptomatic of an unreconstructed party addicted to borrowing and spending other peopleâ€™s money?
That the recovery of the next two years will be joyless seems almost certain.Â That it will be voteless is far less so.Â Indeed, itâ€™s almost certain not to be if that recovery is sustained and if the governing parties can behave as the electorate expects governing parties to.Â And those are the â€˜ifsâ€™ to focus on.