Sunday, May 03, 2015
Deja vu - but the choice is starker this time
Posted by David Smith at 09:00 AM
Category: David Smith's other articles

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My regular column is available to subscribers on www.thesundaytimes.co.uk This is an excerpt.

The election is upon us, the party leaders’ voices are getting hoarser, and I don’t suppose many people would mind if they never heard a “cast-iron pledge” aimed at “hard-working families” again.

You will have heard pundits say we have never seen anything quite like this election before. Certainly the rise of the Scottish National Party, and to a lesser extent Ukip, makes it different.

In other respects things are quite familiar. To confirm my sense of déjà vu, I looked back to what I wrote on the Sunday before the May 2010 election.

All three parties were on the receiving end of a battering from the Institute for Fiscal Studies (IFS), then run by Robert Chote, now chairman of the Office for Budget Responsibility, for not coming clean about their policies. Opposition parties took their lead from the government; Labour’s refusal to spell out how it would cut spending (Alistair Darling, under pressure from Downing Street, postponed his spending review). Change the names and not much has changed.

It looked then, as now, that we were heading for a hung parliament, though the Tories were well ahead in the polls. While not then knowing there would be a full coalition, I wrote of a first budget for a new Tory government with Liberal Democrat input and the “obvious” a rise in Vat to 20%. I also warned of a post-election hangover for the economy, whoever won. The eurozone crisis was intensifying, the banking system had not been fixed and deficit reduction was just getting going.

How has the past five years gone? Just in case the LibDems do not make it into government again – and it will be a surprise if they do not lose half of their current parliamentary seats – let me praise them.

All politicians have their eyes on power but the LibDems entered coalition with the Tories in the national interest and have mainly made a positive contribution. The coalition has been more stable and less argumentative than many majority governments.

Nick Clegg has been a calming influence, Vince Cable a solid business secretary and Danny Alexander, who I remember as a young press officer for Britain in Europe, a capable Treasury chief secretary. The LibDems deserve better than the punishment voters appear likely to inflict upon them.

For Labour, the timing of the 2010 election was unfortunate. It presided over the crisis but had no time to clean up afterwards. Even so, the party has been a disappointment in opposition. The great achievement of Tony Blair was to turn Labour into a pro-business left-of-centre party.

Under Ed Miliband that achievement has been junked and, as well as “the cost of living crisis” we have had a string of policy interventions, from price freezes to rent controls, whose common theme is that they never worked in the past. It can only be a matter of time before we have a prices and incomes policy.

The Tories, and George Osborne, deserve credit for not bending under extreme pressure, particularly when the economy almost stalled in 2012. The chancellor has one big reform under his belt, the liberalisation of pensions that took effect last month, and deserves credit for recognising the importance of regional regeneration with his northern powerhouse.

In other respects it has been a bitty chancellorship, with too many initiatives and too little tax simplification. The initiatives may have been there to distract attention from the overriding need to get the deficit down or, as Treasury economists argue, it was necessary to try a series of different things, particularly to get credit flowing.

In the end, it is the overall record that matters and the coalition, under Osborne’s economic leadership, has a good story to tell. The first quarter gross domestic product figures, a 0.3% rise, were disappointing but should be taken with a pinch of salt. Their equivalent five years ago, for the first quarter of 2010, were initially reported as a 0.2% rise but now show a 0.5% increase.

There was no “sharp slowdown” in the first quarter. Non-oil GDP in the final quarter of last year was initially reported as a 0.5% rise. Last week’s preliminary reading for the first quarter was 0.4%.

Even after those figures, Britain’s gross domestic product has risen by more than 9.5% in real terms over the past five years. Non-oil GDP, which is a better measure of underlying activity, is up almost 11%.

The job market story has been astonishing, with a record 31m, or 73.4% of working-age people in jobs, unemployment falling, and private-sector job creation, almost 3m over the past five years, comfortably exceeding the near-1m public sector job cuts. It has been a long time coming but inflation at zero has restored growth in real wages.

Most of all, though deficit reduction has been slower than hoped, because of weak tax revenues, it has ceased to become a crisis issue. Britain has been brought back from the edge of an abyss which, whatever some say now with the benefit of hindsight, was real in 2010.

What about all that we have heard in the past few weeks? A positive economic story has been in danger of being drowned out by the negatives. What should have been a straightforward “sound money” approach to pushing on with eliminating the deficit has too often come over as austerity for its own sake.

As for all the gimmicks and giveaways that the parties have been showering around in recent days, the intelligent voter should ignore most of them. David Cameron, in promising to legislate against any rise in major taxes, is trying to close off the Labour charge that if re-elected he would put Vat up again. It would not have happened anyway, but the fear must have been picked up in focus groups. Like Labour’s silly pledge to reduce the budget deficit every year, there would be a get-out clause. No chancellor could deprive himself of the right to raise tax in all circumstances.

Similarly, the main parties have been trying to outdo each other by throwing money at home-buyers, whether it is the Tories’ planned very large right-to-buy discounts for housing association tenants or Labour’s stamp duty holiday on purchases up to £300,000. None of this addresses the problem of housing supply. Given capacity in the industry I will eat my hard-hat if 1m new homes are built over the next five years.

The big issues affecting the economy: productivity, improving export performance and the current account deficit, rebalancing are not in the gift of politicians. As Osborne discovered, it is one thing to talk about the “march of the makers”, another thing to deliver it.

That said, there is more of a choice this time, though the prospect of a hung parliament makes it a difficult one. Even the most expert of tactical voters could not plan their vote in a way that ensures the continuation of a current coalition. Labour voters may hate the idea of a government propped up by the SNP but may end up getting it. So might Ukip voters.

The choice, in the end, comes down to whether people favour a return to greater interventionism, and policies aimed at taxing the rich more which could make Britain a less attractive location for inward investment, together with higher levels of government debt. We will know in a few days which way the dice has fallen.