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Another day of bad news – how will it affect the Tories?


8:40 am - July 25th 2012

by Sunny Hundal    


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New data out today should confirm that the UK is still in recession – contracting for a third quarter in a row.

According to the BBC, economists expect the economy to have shrunk between 0.2% and 0.5% in the three months to June 2012, compared to the same period last year.

Update: The economy has actually contractred by 0.7% according to official figures. This is an unmitigated disaster.


(graph by the Spectator)

A few thoughts on this big economic development.

1) This is not a huge watershed in the way the technical start of the recession was – but it will still be a big slap in the face for Osbornomics. This government predicted that cutting spending would create more space for the private sector to spur growth. Instead the economy is in the doldrums.

Right-wingers will say that it wasn’t austerity but European factors made things worse. But even if you believe the Euro was responsible for this mess – the job of the Chancellor is to shield against that. All we’ve seen is slash and burn instead – which has worsened the bad state the UK was in.

2) Labour will benefit from Tory misfortune, but not in the short term. The Westminster press will look at the polls and say Labour still isn’t picking up despite the terrible economy so all is lost for them. But this only tells half the story.

For the Labour party to be listened to again on the economy by a majority of voters, the Tories first need to be utterly discredited. I don’t mean in the eyes of lefties – but centrist voters who don’t pay attention. It makes no sense for Labour to spell out their response in detail if most people still believe the Tories to be competent. Their focus should be to attack, undermine and ridicule Tory economic policy.

Labour was in power during the biggest crash of the last 80 years – people won’t forget that easily. Therefore trust won’t come back quickly and easily. They need to get the public to distrust Tory plans for the economy first, only then will Labour benefit.

Labour’s key line of attack suits the purpose: ‘this is a recession made in Downing Street’.

3) The politics aside – this is a disaster for ordinary working people. As Duncan Weldon pointed out – we are looking at a ‘lost decade’ in the UK thanks to ineffectual Tory policy.

We are half-way through an awful decade. There is plenty more bad news to come.

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About the author
Sunny Hundal is editor of LC. Also: on Twitter, at Pickled Politics and Guardian CIF.
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Reader comments


0.5% reduction would be a game changer I think.

Debt downgrade may follow soon after and the political fallout flowing from that would be tectonic.

The drip-drip of consistently poor economic news is also helping to continue to undermine unwarranted Tory economic credibility.

This is the universal truth: Tories always pitch the economy into recession on their watch.

This parliament is no different.

And so it is no surprise to see them notching up the *longest* double dip recession since the Great Depression.

Not only do Tory governments always seem to pitch the economy into recession (1963, 1973, 1980, 1992), Labour governments have to get it out of recession (1964, 1974, 1997). Which is opposite to the received wisdom.

Well the number came in at a shocking -0.7%.

The Tories have outdone themselves this time.

So Sunny need not have worried.

This will rightly damage the Tory brand even more.

For the Labour party to be listened to again on the economy by a majority of voters, the Tories first need to be utterly discredited. I don’t mean in the eyes of lefties – but centrist voters who don’t pay attention

With all due respect, I think Labour will have to do a lot more than just discredit the Tories. Many people remember the Iraq war, and whilst I am aware that you are talking specifically about the economy, many people also realise that it was Blair’s wars that cost this country astronomical sums of money, in addition to the lives of service men and women. The Labour party also failed to regulate the banks, I know, the Tories have been equally obsessed about de-regulation, leading to the global economic crisis. Ed Miliband is not helping the cause by schmoosing with the likes of Blair, the biggest advocate of the criminal banksters. The left want a Labour party which is true to it’s ideology, not more of the same New Labour. The Labour party does not even need to attempt discredit the Tories, they discredit themselves beautifully all on their own.

The electorate did not need a degree in economics to know that Osbourne’s stance on the economy was doomed, from the offset. As a former Labour party voter I would not consider giving my vote to that party again, they are still New Labour, the new right-or old right depending on how you look at it.

5. Luis Enrique

“This government predicted that cutting spending would create more space for the private sector to spur growth

Yes! Just like the private sector stepped in in the ’80s as large swathes of industry were decimated in the midlands and the north. Oh…hang on a minute……..

@4
“With all due respect, I think Labour will have to do a lot more than just discredit the Tories. Many people remember the Iraq war”

I doubt people who were against the war in Iraq are likely to be voting Tory in 2015, are they? And those who did vote Lib Dem in protest have now come to realise their mistake.

Although I fully appreciate that this bad news will have a negative effect on the public’s support of the Conservative Party, I can’t see how it will have positive effect on the Labour Party’s standing.

Sadly, the ongoing Euro confusion, bad weather and general increase in public responsibility towards personal debt, has lead to a financial situation that will just result in a general lessening in respect for politicians, economists and lending institutions.

“They need to get the public to distrust Tory plans for the economy first, only then will Labour benefit”

ridiculous idea. labour should be pressured irrespective of the conservative situation. otherwise all you will be left with is a conservative lite government.

10. margin4error

This further opens up the opportunity for Labour to offer an alternative.

That’s all it does. It does of course make it easier to sell that alternative view of how our economy works – and some of us have said for years that the tories are woefully out-dated in their economic understanding (cutting the state and letting the private sector fill the space was obviously stupid in an economy that has the private sector delivering so much of its public sector).

But as yet Labour have not created a compelling case that they have an alternative that will put things right. This may be poor communication, but I suspect it reflects the ongoing policy review process Labour are going through.

The next party conference season will be a big opportunity to present the economy as Labour’s natural territory. A well set out strategy with some eye-catching aspects would really help the public see Labour as the answer to the problem.

@ John Ruddy-
I doubt people who were against the war in Iraq are likely to be voting Tory in 2015, are they? And those who did vote Lib Dem in protest have now come to realise their mistake.

I think you may have misunderstood the point I was trying to make. I wasn’t suggesting that those who opposed the Iraq war would have voted Tory, quite the opposite in fact. Many from the left deserted the Labour party and gave their support to other left-wing parties. ie. The Greens, Respect etc. Given George Galloways recent election victory in Bradford West, I don’t believe it’s unrealistic to imagine that this might become a *trend*

The Tories are still nasty, still sleazy, and useless when it comes to the economy just as they were in the eighties (I remember it well) Unfortunately however, I don’t see a credible alternative in the Labour party, I wish I did.
Tony “the torie” Blair mugged the electorate in 1997, Ed miliband’s recent schmoosing with TB is not helpful, it just reminds many people who once voted Labour why they withdrew their support in the first place. Labour have a long way to go before they can win back those 5 million votes!

12. margin4error

Lisa

Some one else said Labour had lost 5million core voters on another thread just now – I asked where and who these voters were.

If you know, please fill me in.

We have been told by every government for 30 years that we can have full employment or low inflation, but not both. So how come, and not exactly for the first time during that period, we now have desperately high unemployment and desperately high inflation simultaneously? I am reminded of the not unrelated argument, occasionally still trotted out, that minimum wage provision would destroy jobs, making low wages the condition of low unemployment. It always rang more than a little hollow here in the North East, with both the lowest wages and the highest unemployment in the country. Here in County Durham, we had both the lowest wages and the highest unemployment of the lot. I know. Imagine that.

With even the meaningless jibe that Ed Miliband was not as popular as his party now blown out of the water, the time is ripe to insist on the successful combination of full employment with low inflation. A strong financial services sector with a strong food production and manufacturing base, and with the strong democratic accountability of both. A leading role on the world stage with a vital commitment to peace, including a complete absence of weapons of mass destruction. Academic excellence with technical proficiency. Superb and inexpensive public transport with personal freedom and with close-knit rural communities. Visible and effective policing with civil liberty. And very high levels of productivity with the robust protection of workers, consumers, communities and the environment, including powerful workers’ representation at every level of corporate governance.

In a number of other Commonwealth and European countries, these combinations are taken for granted. Or they were until recently, in much happier times.

@margin for error,

http://labourlist.org/2012/07/labours-lost-voters-lego-politics-or-grand-design/

http://shiftinggrounds.org/2012/04/labours-missing-five-million-2/

In contrast to the other person from another thread, I wouldn’t define all from the five million as “core voters.” But that’s for another thread altogether. 🙂

15. margin4error

David

The Philips curve long pre-dates 30 years. Indeed it’s big failure and re-assessment came in the 70s when unemployment and inflation both rose together.

And in fairness, it was equally as broken under Blair’s government when inflation was fairly low while unemployment kept falling.

So it is possible to put the economy in a position to achieve both. What is tough is working out how to do so (more open borders tend to help, as do improving skill levels – but that’s far from a full picture) and then working out how to present that message in a way people appreciate and understand.

@David Lindsay

> So how come… we now have desperately high unemployment and
> desperately high inflation simultaneously?

I can’t agree with the entirety of this statement; unemployment is certainly atrocious, and austerity continues to be counter-productive, but I don’t think it is fair to say we have desperately high inflation. Although inflation in the absence of wage increases certainly makes things tougher for the typical person, the actual inflation figures are not, in and of themselves, high. In fact, many economists argue that the typical target rate of 2% inflation is in fact too low (during ‘normal’ economic conditions that is), and that we should really be setting a 3-4% target.

Moderate inflation, combined with GDP growth (which we obviously aren’t seeing), is beneficial in that it reduces the real value of the national debt. The greater danger for now remains poor, or even negative GDP growth, and in particular deflation, as this would increase the real value of our debt.

> …the time is ripe to insist on the successful combination of full employment with low inflation…

Following on from what I said above, I would modify that statement to full employment and moderate inflation. I would argue that the way to achieve this is

1) stop laying off public sector workers, as adding to the unemployment figures will increase benefit costs and is clearly not going to help increase domestic demand! Unemployed people tend to be reluctant spenders!!

2) large scale, multi-year infrastructure projects to put people back to work, and reap the benefits of the improved infrastructure itself (this would include road, rail, schools, energy (with a focus on renewables)). How to pay for this; simple, take advantage of Britain’s incredibly low interest rates and borrow money – right now our rates are so low that people are effectively *paying us* to hold onto their money. Despite all the focus on debt and deficits we are still very far from being unable to afford to repay our debts (consider that our post war debt burden was 3 times what it is now!), particularly at current rates (that will change if we continue to see the economy contract, and the emergence of deflation).

3) Rebalance the economy away from financial services and towards a science-based economy by substantially increasing our currently pitiful science budget (a relatively small increase in absolute spending – an extra £6 billion would effectively triple the research council budget – leading to large longer-term payoffs). This would need to be a longer-term goal, but has the benefit of being an endeavour that clearly benefits the many rather than the few.

I broadly agree with many of your additional points for what a better society might look like, though I’ve skipped over a number of those as I don’t think they are economic growth issues as such, more social justice and the like.

17. Richard W

The usual caveats that never seem to get through to the MSM that ONS first release GDP figures should be treated skeptically also applies with this number. The ONS output data makes no sense when compared with other data and that has been the case for at least three years. The underlying economy is not contracting by 0.7%, at best we are treading water in a flat economy.

It is often said that the first objective of a medical doctor is not to make things worse for the patient. Using this standard Mr Osborne has failed in the first objective. He inherited a bad situation and made it worse. His claims on CH4 news that he has cut the deficit by a quarter were spurious nonsense. I am surprised that Faisal Islam who is usually quite good let him away with this claim. The deficit was forecast to reduce by a quarter even if he had done nothing.

What is quite clear is that the UK cannot have a flat economy for two years, run a deficit of 7-8% of national income and expect to retain triple A status. Growth is what matters for the debt trajectory and since they have failed to achieve growth a downgrade is all but certain to eventually follow. In the grand scheme of things a downgrade will not change much for UK growth and debt dynamics. Buyers of gilts will still buy at the same price without the downgrade. Only severely restricted marginal buyers will care about the rating that a credit rating agency assigns. However, the loss of prestige caused by a downgrade will severely damage the credibility of the government. The coalition put so much emphasis on retaining triple A status that the loss of the status will terminally damage their credibility.

18. margin4error

Thanks Lisa

I suspect you are spot on about them not being “core” voters. Certainly the links you provide suggest that it was largely centre-ground voters that switch between tory and labour from one election to the next who were lost.

Not that this means it is any less important to win such people back.

@Marginforerror.

No problem. I do agree that many from this group were not core voters in the traditional sense. I also believe, and obviously this is just my opinion, that if the Labour Party want to appeal to the swing voters, in addition to the once core Labour voters, they need to be consistent about who they are and what they stand for. At the moment I’m just not hearing that message. Perhaps this is because they are reviewing policy, don’t want to promise what they can’t deliver, or because they want to please all of the people all of the time-which of course is impossible.

Tony Benn’s analogy of signposts and weathercocks springs to mind here. Cameron has proved time and time again that he is weathercock and his message regarding who the Conservatives are and what they stand for has become so convoluted, just like his big society soundbites, that it is obvious that he doesn’t even know. This is a great opportunity for Miliband and the Labour party to deliver a consistent message. After all, Labour party traditionalists have been screaming about crony capitalism, Murdoch’s all too powerful political influence and the excesses of the city for ever. And it’s obvious that the electorate want to discuss these issues now-even the swing voters.

20. margin4error

Lisa

the sense of consistenc is important. So is the perception of competence, which I suspect is why Labour have been reluctant to set out too much too soon. a year ago people were not too interested in Labour’s economic outlook. How could they be? They were not yet convinced the Tories would be useless at economics, and they were still inclined to think back to Brown in charge and so ignore Labour entirely.

That is starting to change and it gives labour an opportunity. I accept that what Labour comes out with won’t match my opinion and ambition – in part because it has to appear consiliatory and because it has to appeal to people who are not me.

But if they get the broad direction right, and they can deliver a consistent and hopefully more optimistic direction – they stand to do fairly well.

@marginforerror,

Yes, I broadly agree. It does appear that blaming the last Government for all of our economic woes is wearing a bit thin. Now the people appear to want scalps!

http://epetitions.direct.gov.uk/petitions/33327


Reactions: Twitter, blogs
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  4. BevR

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  5. Legal Aware

    @sunny_hundal: read your fab article http://t.co/GNXZdBzx but still a bit unsure what will change of the mind of centrist voters, sunny?

  6. Penny Newton

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