John Rentoul: Ed needs business more than big wins

The Lib Dems lost the by-election but claimed success. Labour won it but it's a terrible result for them

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Chris Huhne, the Secretary of State for Energy and possible successor to Nick Clegg as leader of the coalition's junior party, said on the BBC on Friday that the Oldham East and Saddleworth by-election helped to make the case for the Alternative Vote. Which only goes to show that by-elections are like dreams: they mean what you want them to. The interpretation of them says more about the interpreter, and about their unconscious, than about the voter. Still, at least he didn't say that he felt he was falling, naked, after trying to get away from an oncoming train.

In the dull grey light of the waking world, Labour would probably have still won in Oldham under AV, just. People would have voted differently – the Tory candidate would have got more first-preference votes from supporters who voted tactically for the Lib Dem on Thursday. But not enough to overtake the Lib Dem, so the outcome would have depended on how the preferences of Tory, UKIP and BNP voters split between the front-runners and non-voting. Recent opinion poll evidence on second preferences suggests that Labour would have won by about 1.5 points.

That would have made the count quite exciting. And it was an ingenious way for Huhne to turn the interviewer's question, along standard BBC lines of "you're in a mess aren't you?" to forward-looking advantage. It will buck up Lib Dem activists to think that, if they win the referendum on AV in May, they could go on to win by-elections such as Oldham.

Our ComRes poll today suggests that the referendum is winnable. When we put the official question drafted by the Electoral Commission to the voters, the Yes vote came out six points ahead. But Huhne's argument will raise the hackles of Labour activists, many of whom can only dimly remember why they supported electoral reform in the first place. Why should they campaign to change a system that has just delivered such a satisfying victory?

Therein lies the actual meaning of the Oldham by-election. Its significance for the Lib Dems is limited. It may have bought Nick Clegg a breathing space because the Lib Dem vote held up, but that is as much use to him as an oxygen mask when one of the plane's wings has fallen off. There are not many seats like Oldham, with a strong, local Liberal tradition and a big transferable Tory vote, and the Lib Dems didn't win, and wouldn't win even under AV. Which is why it was interesting (this may be too conspiratorial) to see Huhne, Clegg's rival, out and about and talking about a vote that the Lib Dems could win.

No, the by-election is important because it was a terrible result for Labour. It means that the incipient crisis of Ed Miliband's leadership is averted. It is no use the Labour leader, in his speech yesterday, saying he wasn't going to "gloat" over Oldham and that there is a long, hard road ahead. It may have been astute of him to avoid a lap of honour in the constituency and to head straight for marginal southern seats in Brighton and Reading. But none of that will stop him and the New Generation that has "got our party back" from thinking, in the inner recesses, that the Oldham result is a vindication of the Ed Miliband strategy.

None of it will stop Cameronian ministers from saying, as one said to me last week, "We've got them right where we want them." And so they have, despite coming a distant third on Thursday. The only subject that could be called an "issue" in the local campaign was cuts in police numbers. And that works for Labour only because it plays to the New Labour theme of "tough on crime", not because it is about "the cuts".

So far, the Ed Miliband strategy, with the important and honourable exception of Douglas Alexander on welfare spending, has been to oppose the cuts and to complain about broken promises. It is fine for by-elections but no use for general elections.

A Labour Party that goes into the next general election offering to spend more, borrow more or tax more is not going to win, and those perceptions have already attached themselves to the leader. He did well in a Bash-a- Banker bout (Punch and Judy rules) against David Cameron last week, but the Prime Minister is too agile to lose that one: he pointed out that the total tax take from the banks this year would be higher than under Labour. And that, too, is a fight that Ed Miliband can only lose by winning.

Bashing bankers is popular – our poll today confirms that – but it comes with a price. It reinforces the perception that Miliband does not understand an enterprising and productive economy. Perhaps the most telling finding from our poll is that voters are not convinced that a Labour government under Ed Miliband would be "better at protecting people's jobs" than the coalition. That is a harsh judgement. The belief that Labour would protect jobs was the only plank rescued from the wreckage that kept the unelectable Gordon Brown afloat last year, so that he denied the Conservatives a majority.

Disastrously, Labour could not persuade a single business leader to support it in the 2010 election campaign. That perception of Labour as out of touch with the making of money has to be reversed, and yet Ed Miliband yesterday declared that Labour had been wrong to "put markets and commerce before the common good".

Yesterday's speech was trailed as an admission of Labour's economic mistakes. When it came to it, he said "we didn't get banking regulation right" and were "too reliant on financial services". Not quite, you notice, "Sorry we made the deficit worse than it should have been."

As a leader elected by the trade unions, he is dangerously exposed. Last week, Cameron hinted at tighter rules on strike ballots. Miliband, who promised in the leadership campaign to review union law in the opposite direction, can only lose that contest.

Anyone who allows the result of the Oldham by-election to obscure that reality is living in a dreamworld.



twitter.com/JohnRentoul; independent.co.uk/jrentoul

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