It’s the economy stupid!

Few political mantras have ever had the resonance of “It’s the Economy, Stupid”. It was the assertion by Bill Clinton’s 1992 campaign chief James Carvel which he posted on the wall of their Little Rock headquarters. It was an encouragement to staff to stay “on message”.

It has passed into the political lexicon as the standard reminder that when it comes to general elections, economic matters trump all others. So, will that be the case in the UK in 2024?

Is Carvel’s injunction as profound as it seemed or is it simply a statement of the obvious, or even a truism?  It is taken by political parties the world over, especially opposition parties, as a sine qua non that they must be trusted to run the economy to win.  But what does being trusted on the economy actually amount to, and how can it be tested or measured?  What does the “economy” mean to most voters?  Do they judge it by objective statistics or their own experience and sense of prosperity?  These questions will be front and centre in Britain as we approach an election in the most difficult economic conditions for decades. Both main parties know that there is no easy answer to them.

What does the British experience tell us?

It has long been a basic assumption of British life that the fortunes of a government are closely tied to the performance of the economy and its impact on the voters’ personal experience.  In the 1950s, 60s and 70s the classic strategy of governments would be to take the tough decisions and get the pain out of the way early in a parliament and then hope that there would be money available to spend on giveaways and tax cuts in the year before an election.

But that was in an era when the Chancellor of the Exchequer set interest rates, when large parts of manufacturing industry and most utilities were owned by the government, when government legislated to limit pay increases, and before Britain became part of the EU single market. It was a time when politicians had hands on significant economic levers which influenced national economic trends and household incomes.  The political cycle was indeed tied to the economic one.

With privatisation, globalisation and industrial change this relationship became looser from the 1980s. After 1997, Chancellor Gordon Brown consciously tried to “break the cycle of boom and bust” by granting independence to the Bank of England and using fiscal rules to try to constrain spending and borrowing.

It’s possible to win when the country is losing

The theory that economic and electoral success move in lockstep was reinforced by the big Conservative victory in the “Never had it so good” election of 1959. The repeated failure of governments to be re-elected in the era of high inflation, economic decline, and unemployment in the 60s and 70s reinforced this sense in the political zeitgeist. But the Conservatives won a landslide in 1983 when Britain had just been through a brutal recession and unemployment was at record levels. And just to confound things further they did something similar in 1992.

The 1992 election is perhaps the most instructive in illustrating the complexities of matching economic realities and perceptions and election results.  It took place in the midst of a recession, having been delayed by the Tories in the hope of an economic upturn. It was a recession which had been particularly damaging in the prosperous South-East where house prices collapsed, and millions experienced an entirely new phenomenon of negative equity.  And yet, in that year’s election the Tories secured the largest number of votes for any party before or since; and did particularly well in the south of England.  The received wisdom was that rather than punishing the government for its failures (and the recession was widely regarded as the consequence of the “Lawson boom”) in fact the electorate had been anxious about electing a Labour government at a time of collective and individual economic vulnerability – fearful that Labour may herald higher taxes and interest rates.

Less than six months later Britain left the Exchange Rate Mechanism, interest rates briefly reached 15 per cent and the Conservatives fell behind in the polls. They never recovered and Labour won a landslide victory in 1997.   Many, including John Major himself, believed that having been given the benefit of the doubt over Labour’s economic competence in the 1992 election the ERM episode was the seminal turning point for the Conservative government.

Is L.I.Z the new E.R.M?

Many have compared the ERM events of September 1992 with the Liz Truss Financial Statement of September 2022. Both caused a plummeting of the Conservatives poll rating and significant Labour leads. Has this destroyed the Conservatives’ reputation for economic and fiscal responsibility so assiduously cultivated by David Cameron and George Osborne which was so crucial to their victory in their 2015 election?

Of course, the damage to Britain’s economy from Kwasi Kwarteng’s short-lived growth plan compounded an already perilous economic position with inflation (now of course strictly a responsibility of the Bank of England) back at levels not seen since the 1970s. Labour poll lead of almost 30% is matched by its ratings on the NHS, schools and public services. But they know they have to do more on the economy.

It’s stupid to say it’s only the economy

The incumbent Conservative governments won recession elections in 1983 and 1992 because the voters trusted those who got them into the economic hole more than they trusted Labour to get them out of it. The election will be won and lost on whether the public trusts Labour sufficiently on the economy to grant them their first victory since 2005. That’s partly why Shadow Chancellor Rachel Reeves and her team are making such great play of the need for every Labour pledge to be costed and paid for from an identified source.

If, as we all hope, the economic indicators improve over the next eighteen months, the Conservatives will be tempted to revisit their winning 1992 strategy. But with most UK households still worse off than at the time of the last election, that may prove difficult.

And perhaps Ronald Reagan will make an appearance

We started this article by reflecting on one American campaign slogan. We end it by predicting that we’ll also be hearing a US campaign question. Labour may borrow its campaign messaging from the most unlikely of US sources, Ronald Reagan. Back in 1980, incumbent Jimmy Carter had managed to make the Presidential election competitive going into the TV debates. But Regan sealed the deal by asking the viewers the simplest of questions “Are you feeling better off than you did four years ago?” Labour may ask Britons their own version of the same question, in the hope of securing the same outcome Reagan did.