Sunday, June 11, 2006
Brown's reputation wilts as the political heat turns up
Posted by David Smith at 11:00 AM
Category: David Smith's other articles

The hot topic in political circles is whether David Cameron is building enough momentum so that when Gordon Brown does eventually take over from Tony Blair, Labour will be so far behind in the polls Brown will have an electoral mountain to climb.

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Lying behind this is a related but equally important question. Labour’s great strength has been public confidence in its ability to run the economy. While the Tories, since 1992, have been regarded as the “boom and bust” party who gave you 15% interest rates (or worse) and unemployment of 3m, Brown has exuded quiet, if occasionally dull, competence.

It has long been my view that for opponents to beat a party or a government that is ahead on this key “economic competence” question verges on the impossible. So what has been happening recently is really rather interesting.

According to YouGov, the online pollsters, the past year has seen a dramatic drop in voter confidence in Labour’s ability to run the economy. At the time of the May 2005 election, 49% of people though Brown was more likely to run the economy better than his Tory opposite number, then Oliver Letwin, who scored 27%. Labour had a safe 22-point lead on the issue, which helped the party immeasurably in securing a third term in office amid doubts over Iraq and an erosion of trust in the prime minister.

Now, however, the gap has shrunk to almost nothing. Labour’s economic competence rating last month was just 32%, down 17 points in a year, while the Tories were up to 29%. There isn’t yet an enormous surge in confidence in Conservative economic competence but there has been a significant decline for Labour and Brown. Nor does this appear to be a flash in the plan. Labour’s lead on economic competence has been five points or less for the past six months.

This can be tied in to another poll finding, from Ipsos Mori last week, which showed that the economy ranked only eighth in people’s concerns, behind immigration, the NHS, crime, defence/foreign affairs, education and the environment. Labour’s worry, that people would take for granted a stable economy and low unemployment and inflation, appears to be coming home to roost.

Actually, the public mood seems to be worse than merely taking for granted stability. People are curmudgeonly about the economy, Mori’s economic optimism index shows a net 32% expect things to get worse over the next year. This measure, it is should be said, rarely shows people to be cheerful recently, though they have been in the past.

We can tie this to the Bank of England’s own readings of the public mood on inflation. While inflation is 2% according to the consumer prices index (CPI), the Bank’s latest inflation attitudes survey showed people think it has been running at 2.8% over the past year.

That tells me, once again, that it was unwise for the chancellor to make the Bank switch to a target measure of inflation few people believe in. It also gives the Bank an unnecessary credibility problem; it was never the case when the retail prices index (excluding mortgage interest payments) was the target that people had to be convinced it was a reliable measure of inflation.

The chancellor, having given the Bank independence, has not done much to help it recently. The monetary policy committee (MPC) is still one member short, nearly three months since Richard Lambert announced he was leaving to take over as CBI director-general. There have been raised eyebrows over the appointment of David Blanchflower, who will attend the MPC on a commute from New Hampshire. I’m old fashioned enough to believe you have to live and breathe the British economy to make decisions about it.

None of this matters, of course, to most voters. What does matter is the perception that they are being squeezed by higher energy prices, that taxes continue to rise and that, before too long, their mortgage rates will be going up too.

Brown’s economic competence rating is, to a certain extent, being hit by events outside his control. Higher energy prices are not, on this occasion, his fault but they add to the political wear and tear on him after nine years in office. Underlying his declining ratings are the many tax rises - 80 since 1997 on one estimate - and the growing belief that this is not money well spent, whether on tax credits or the NHS.

What the Tories haven’t done yet, however, is provide people with a positive reason for voting for them on the economy. George Osborne, the shadow chancellor, says he will put economic stability ahead of tax cuts but that, to me, is a non-sequitur, a logical fallacy.

Whether or not you have tax cuts depends on your decisions and political priorities on public spending. Labour has demonstrated it is possible to have lots more public spending and maintain economic stability. There is nothing inherently unstable about tax cuts.

Even Sir Menzies Campbell, the Liberal Democrat leader, is saying interesting things about tax - promising significant income tax reductions, to be paid for by higher "green" taxes. His plan, however, is marred because it also relies on substantial revenues from a 1970s-style squeeze on the super-rich, by targeting their pensions and capital gains. If it was this easy, we can bet Brown would have done it.

There may be method in the Tories' approach. If they can merely neutralise Labour on the economy while building big leads on other issues, it may be enough. Either way, it makes for an interesting prospect.

PS People have been asking me whether I’d care to reconsider my “don’t panic” message on global warming, following Sir David Attenborough’s recent BBC programmes on the subject. I’ve enjoyed and admired the great man’s work from Zoo Quest through Life on Earth and the Blue Planet. I looked on in wonderment when he bonded with gorillas. I don’t think, however, Are We Changing Planet Earth?, was his finest hour.

My doubts were raised when, asked on the Today programme about global warming, he came up with the example of New Orleans and Hurricane Katrina. His programme duly followed it up with expert testimony suggesting that the devastation of New Orleans was proof that global warming was wreaking havoc and costing lives.

Well, no. Just as there is no scientific consensus on the degree of global warming that is likely over the next century, there is no firm evidence that Katrina had anything to do with global warming. The number of hurricanes hitting the US mainland per decade was higher in the period from 1850 to 1950 than it has been since. The recent peak for hurricane activity was in the 1940s, including severe category 3, 4 and 5 storms, since when the number has been significantly lower.

Let me offer this quote: “Based on recent research, the consensus view is that we don't expect global warming to make a difference to the frequency of hurricanes,” explains Julian Heming, from the UK Meteorological Office. That was on the BBC’s own website after Katrina last year.

To repeat. Some global warming has occurred and is occurring. It is sensible that we conserve energy and seek to limit greenhouse emissions. But the extent to which it will increase in line with alarmist, officially-endorsed projections are both sources of legitimate debate.

Last week 14 large companies, including Tesco, Shell UK, Vodafone and Standard Chartered, urged Tony Blair to set tougher targets for greenhouse gas emissions so that, in the words of James Smith, Shell UK’s chairman, “our businesses can have the confidence to make long-term investments in reducing emissions.”

I’m all for business showing environmental responsibility but it seems odd for companies to say they will only act if the government sets tougher targets. They sense, I think, a commercial opportunity, and a chance to improve their reputation for good corporate citizenship. Nothing wrong with that but other businesses, particularly smaller ones, take a different view. The last thing they want is for Britain to have tougher targets than everybody else. I’ll return to this topic.

From The Sunday Times, June 11 2006

Comments

isn't it the case that brown's 'boast' of record employment and a 'stable' economy derives from his raiding of taxpayers, pension funds, telecom companies, so as to squander the money on the mickey mouse 'employment' of more and more civil servants and nhs staff. The other side to this coin is the worsening environment for the real wealthbuilding activities which have declined under brown. at long last the voter is realising that he has been duped by all the brown self-righteousness he has had to endure for 8 years. the worm is slowly turning

Posted by: john cornford at June 11, 2006 10:54 PM

Actually, I think there is little evidence to support John Cornford's bile ( and that of the commenters on today's Niall Ferguson Daily Telegraph article).

While public sector employment may have grown, virtually all the growth has been in education and health, much of it on the back of reckless election promises made by Tony Blair not Gordon Brown.

The regional public spending issue I think is little changed over recent years, although there has been a shift from direct state aid to business to state aid via the tax credit system encouraging lower wage costs - which I think is economically literate. Those who talk about regional public spending have to demonstrate (a) that the spending proportion has changed and (b) that this is in some way detrimental to the overall economy. Neither have been demonstrated.

The poll results are much more likely to result from a sustained campaign in the media.

Posted by: Paul Bivand at June 12, 2006 12:18 PM

I think Brown is suffering from having been in the job too long and because, after a while, people take stability for granted. I do think, however, that articles as daft as Niall Ferguson's probably help him. Brown doesn't even holiday in Martha's Vineyard. There is legitimate criticism about Brown's tax and spend, and about over-regulation, and the tax credit fiasco, but the 'we're all doomed' approach doesn't really work.

Posted by: David Smith at June 12, 2006 12:32 PM

The recent stability (since 2004) has only really been acheived because of cheap credit and fierce competition amongst consumer finance companies. In this respect it hasn't been stability so much as kicking problems into the long grass. After all, borrowing is not the same as output-driven wealth creation.

This I think is why at the G8 meeting at the weekend, Brown has been tactfully warning that oil-driven inflationary pressures might damage the world economy (he's actually talking about the UK economy of course, because of our economy's depleted resilience to interest rate rises).

Dull competence, or fiscal serendipity? As inflation has started catching up, the MPC has been holding off the rise - which it can't do for ever.

Posted by: Barry at June 12, 2006 03:30 PM

I meant the rather longer-term stability, which dates back to 1992-3, since which time inflation has averaged roughly 2.5% on the RPIX measure and growth has continued, quarter-in, quarter-out. Brown, of course, inherited an economy in 1997 that had already embarked on this long period of stability. His main contribution to maintaining it, in my view, was Bank of England independence.

Posted by: David Smith at June 12, 2006 05:19 PM

I feel that the lowered competence rating might in part be due to our fading memories, and I agree that this period of stability is probably unprecedented.

If I remember correctly, the decoupling of the BofE from the elected government was meant to foil the rate-induced boom-bust cycle for which the drumbeat was the general election.

I think that what we have now isn't wholly without side-effects though. Instead of an elected government running the show we have a small group of rate deciders with mixed levels of acquaintance with the UK economic situation who seem to be influenced by whoever is shouting the loudest around monthly decision time (be it retailers, mortgage providers or foreign banks). And they're not immune from making mistakes - hasn't last August's rate cut now been acknowledged by the MPC as short sighted(?)

Not to sound overly critical, john cornford's billowing smoke isn't without fire. Gordon's pensions raid has undoubtedly left companies' schemes reeling, to the taxpayers' significant future loss (contrast Norway's prudently managed pension surplus).

The 3G licenses fiasco generated around 30bn (if I remember correctly) for the UK government to slosh around the public sector between 2002 and 2004. My brother was working for Motorola in Swindon at the time, and for them they saw it as their cue to leave the European market to it's own devices - almost literally!

Personally, I don't disagree with the licenses fiasco though! I think it was good old-fashioned Labour government wealth re-distribution exercise from the wealthy telecoms to the public sector. But again, we have the Gordon the helmsman trading on promises (to realize their investments, those telcos would have had to make around 500 quid per adult as profit through 3G services!), and again we now have credit-based spending fuelling economic growth, which essentially looks like a reverse of the same principle!

If so we have had a half-decade of financial smoke-and-mirrors for which the price isn't paid yet.

Am I being unfair on the Scot?

Posted by: Terry at June 12, 2006 08:31 PM

Terry,

I well remember the 3G licenses fiasco. Motorola in Swindon were one of my customers at the time. The 3G licences practically closed down all wireless infrastructructure development in this country - with the result that it is now done mainly abroad. Another clever move by Gordon Brown.

Posted by: HJ at June 13, 2006 10:54 AM

David
I think there's a remarkable degree of agreement among scientists that global warming is a reality and that temperatures are rising faster than at any time in the last 500,000 years. Agreed many scientists shy away from arguing a difinite causal link to hurricanes, but that's not central to the case for global warming. The evidence for that is based on ice core studies which are generally thought to be a reliable measure of past temperature variations. And above all from the point of view of economics - global warming as a challenge offers businesses greater opportunities even that warfare - and the bottom line is that the precautionary principle that dictates you bring up your children not to play in the road/talk to strangers/eat unknown substances is a sound one; applied to global warming we take a precautionary approach because if the predictions are correct the consequences are simply unthinkable

Posted by: jonathan at June 14, 2006 03:35 PM

Jonathan, You're arguing in good faith and I respect that, but don't overstate it. There's no reputable scientific evidence that this is the fastest period of warming in the past 1,000 years, let alone the past 500,000. What we know is that global temperatures have risen by 0.6 degrees C in the past century. What we don't know is that they will rise by between 2 and 6 degrees over the next century, as the IPCC claims. I agree in general about the precautionary principle but we have to be clear about what we are taking precautions against and why. If we really believed the alarmists we would stop hydrocarbon usage now. I think the climate change lobby is deliberately overstating its case to get some action - nothing wrong with that but we shouldn't confuse it with hard science. Also, there is a risk that such alarmism leads to poor decision-making. I don't have a problem with a new generation of nuclear power stations but others do.

My take on this is that some global warming is indeed occurring but that we need more precision and balance in the debate. I'm also slightly worried that some in the green lobby see this as a new anti-capitalist front.

Posted by: David Smith at June 15, 2006 10:15 AM