Tuesday, 26 May 2015

UK Conservatives hold all the economic and political cards – for now

I’ve been out of action for most of the time since the UK General Election. Here, just in time for tomorrow’s Queen’s Speech setting out the new Conservative majority government’s legislative programme, is my somewhat belated reflection on the outcome, which was clearly devastating for both the Labour Party and the Liberal Democrats.

From an economic perspective, the Conservative party had the strongest hand of cards to play, in large part because of fortuitous circumstances. I remain of the view that phase one of Chancellor George Osborne’s fiscal policy regime from 2010 to 2012 delayed the economic recovery. But whether by luck or judgement the inevitable upswing came at just the right time politically. Better still for Mr Osborne, the improvement in aggregate demand coincided with, and was supported by, a slump in global oil prices which caused consumer price inflation to eventually fall to zero before polling day. As result, an economy experiencing an unprecedentedly long period of weak productivity growth and anaemic nominal average pay rises began to deliver real wage gains that mimicked what would be achieved if productivity was increasing in line with the historical trend. Add in the fact that the flip side of low-productivity and low nominal wage growth was a surge in employment to a record high rate and a positive economic narrative was there for the taking, even if government policy had actually done little to underpin it. As the Chancellor and the Prime Minister David Cameron have proved therefore, it does pay to put lipstick on a pig.

The consequence of all this is that the other main English political parties were probably on an electoral hiding to nothing, albeit they also had to contend with other factors that continue to bedevil them.         

Nick Clegg and co., for example, remain in denial that they made the wrong call in entering a formal coalition with the Conservatives in 2010 rather than offer support in a looser form that would not have meant ditching key manifesto pledges. The Lib Dem poll ratings throughout the past five years showed many people considered this the action of unprincipled careerists who seized a once in a lifetime opportunity to gain high public office. And although there are still some who argue that the experience of life under an untrammelled Conservative majority government will demonstrate the positive restraining role played by the Lib Dems after 2010, this ignores the fact that the coalition formed the bridgehead for this year’s Conservative victory. The only hope for the rump of Lib Dem MPs is to depart from the so-called Orange Book neo-liberalism that led them to disaster under Clegg and choose a leader who will tack back to the centre-left ground that served them well until the mid-2000s.

The task facing the Labour Party is far more difficult. Ed Miliband failed to appeal either to the party’s one time working class core – most notably, though far from exclusively, in Scotland - or to middle England. While much has been said about Miliband’s personality as a factor in this the key dilemma is that traditional social democracy is a hard sell in 21st century England which has bought into a post-Thatcherite north American view of the world that broadly tolerates marked income inequality, scorns welfare recipients and is sceptical of the merit of any form of tax funded social provision other than the NHS. Whoever leads the Labour Party from this autumn will have little option but to build a policy platform that reflects this dominant ideological reality; simply confronting it with pious denigration will not work, as Miliband found to his cost.

However, a more coherent centrist policy platform is unlikely on its own to challenge the current dominance of the Conservatives. The necessary additional condition is an event big enough to demolish the Conservative’s reputation as being the party of competent economic management.

Throughout my adult lifetime there have been periods when one or other of the two largest political parties has been described as ‘the natural party of government’. In both cases supposed perennial supremacy has been swept away almost overnight by economic events. John Major’s Conservative government lost its reputation for economic competence during the ERM crisis of 1992. The global financial crisis of 2008 did the same for Gordon Brown’s labour government. The fact that in both cases these governments made the correct policy calls is immaterial. The (misguided) public perception was that the government in charge either caused these crises or mishandled the aftermath.

As night follows day there will come a time when the current Conservative government will suffer a hit to its economic reputation too, whether self-inflicted (perhaps a hubristic approach to fiscal austerity, or in the welter of the forthcoming EU referendum) or by way of an external shock to the system. The bad news for the opposition parties is that no-one knows when that day will come – next month, next year, next decade. All they can do is prepare so as to be in a position to offer a credible political alternative when the tide finally turns.          

Wednesday, 13 May 2015

UK average weekly wage growth on the up, especially in low pay sectors, as jobless rate edges ever closer to pre-recession low

The Office for National Statistics (ONS) has this morning released the latest set of UK labour market data, mostly covering the three months January to March 2015.

This month’s labour market figures bring good news for jobseekers and wage earners alike. Another large quarterly increase of 202,000 in the number of people in work in the UK has lifted the employment rate to a new record high of 73.5%. More than two-thirds of the additional jobs are full-time, mostly for employees. The unemployment rate meanwhile has fallen to 5.5%, including a substantial fall of 50,000 (to 588,000) in the number of long-term jobless. Despite this, the overall quarterly fall in unemployment (35,000) is modest compared to the rise in employment due to a corresponding rise of 167,000 in the number of people participating in the labour market. Part of this latter rise is in turn due to a fall of 69,000 in the number of economically inactive people of working age.  

With the unemployment rate edging closer to the pre-recession low (5.2%) and both employment and vacancies (up 34,000 to 745,000 in the quarter) at record highs, there is also clear evidence that wage growth is at last gaining momentum. The rate of growth of average regular weekly pay (excluding bonuses) has increased from 1.9% to 2.2% against a backdrop of zero price inflation. The increase is far higher in the private sector (2.7%) than the public sector (0.9%). Most encouraging of all, however, pay is rising fastest in low wage sectors, averaging 3.1% across wholesaling, retailing, hotels and restaurants, offering a welcome boost to real wages for the lowest paid workers.