The next general election will be about living standards. That is bad news for Theresa May. She said all the right things when she became Prime Minister in July. To show she had got the EU referendum message, she promised to govern for the “just about managing” classes (Jams) rather than “the privileged few”. That was the easy bit; the reality is already proving much harder.
While the Autumn Statement looked thin, it told us a lot about the May Government. To meet the huge challenge of Brexit, it will adopt a different approach to the Cameron-Osborne regime on borrowing, infrastructure projects and housing – all welcome changes.
But there is a hole at the heart of the new strategy. Philip Hammond did very little to alleviate the pain that is coming on living standards, as inflation rises faster than wages. The bleak forecasts from the Institute for Fiscal Studies and Resolution Foundation think tanks should worry May, as they show how hard the “Jams” will be squeezed. She will not meet the great expectations she aroused in July without a major change of course.
Hammond showed he is a fiscal hawk who will invest in building projects that provide a return for the economy, but who is reluctant to invest in people by redistributing wealth. “He will be tough-minded on welfare,” said David Willetts, who sat alongside Hammond in the Cabinet in the last parliament and now chairs the Resolution Foundation. Its analysis shows that the £2.9bn the Treasury will pocket from the four-year freeze in working age benefits dwarfs the £1.2bn it is giving back in Universal Credit wage top-ups.
The Tories are already trying to repeat their old trick of blaming Labour – this time for the wage stagnation since the 2008 crash. A revealing pre-emptive strike was made by David Gauke, the Treasury Chief Secretary, as he responded to the think tank reports. “The last Labour Government presided over a Great Recession which made our country poorer, cost jobs and squeezed living standards. It set our country back and hurt the livelihoods of ordinary working people,” he said, in what might prove the first draft of the Tories’ next election campaign.
We can hardly blame them: pinning a deficit caused by a global recession on Labour worked a treat. But it won’t wash this time. The Tories argue that the think tanks’ numbers do not take account of the higher personal tax allowance and claim that “real household disposable income” is rising by 2.8 per cent, the highest ever increase. But this won’t cut any ice with the “Jams” if they are worse off overall, as they surely will be.
The next election will be fought amid a “feel-bad factor”, the opposite of what any governing party wants. The decline in living standards will have happened on the Tories’ watch. Labour is off the public’s radar, a bad place for an opposition, but making it harder for the Tories to blame Labour for voters’ current dissatisfaction. If the election is held in 2020, the lost decade will be all theirs.
Even if voters blamed the income squeeze on Brexit, that would not necessarily spare May. Labour is already attacking what it calls a “shambolic Tory Brexit”.
The Tories might deserve to reap such a whirlwind. But would Labour reap the benefit? One does not follow the other in such unpredictable times. Some Tories think they could withstand public anger because Labour offers no credible alternative. They trot out the old cliché that people will “hang on to nurse for fear of something worse”.
But do the old rules apply in the new politics? I doubt it.
Although Labour still trails the Tories on economic competence, the Tories’ ratings could be hit by the coming squeeze. There would probably be a tiny window for Labour when disillusioned voters took a second look. Labour shows little sign of being ready for that moment, but still has time. Just.
Even if Labour fails the test – as Jeremy Corbyn’s critics think it will – the Tories cannot assume that we are a one-party state in which they will be re-elected whatever they do. Despite the straitjacket of our first-past-the-post voting system, people would find a way to vent their anger at the Tories, just as they delivered a hung parliament in 2010. If Labour didn’t benefit, someone else would – whether Ukip, another populist movement yet to be born or even the Liberal Democrats.
Perhaps Hammond will use the £27bn of headroom he gave himself in the Autumn Statement as a pre-election war chest, go against his instincts and redistribute wealth. But he doesn’t look like a man who wants to do that; May would have to call the shots.
Coming on top of nightmarish Brexit negotiations, the looming economic pain is another reason why May might call an election before 2020 – while voters still give her the benefit of the doubt, and before they judge that she too is governing for “the privileged few”.
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