ANDREW NEIL: In the wake of the shattering by-election results, the Tories have only one option: go for growth

The week started rather well for Rishi Sunak and the Conservatives: not a sentence anybody has been able to write for quite some time.

Keir Starmer was being roundly bashed for executing yet another U-turn — this time ditching Labour’s pledge to invest £28 billion a year in the so-called ‘green revolution’ — while being forced, eventually, to disassociate the party from its candidate in the Rochdale by-election later this month for an anti-Semitic tirade, then suspend another of its parliamentary candidates for the same offence.

Suddenly, Starmer’s boast that he really had changed his party sounded a bit hollow.

The Tory mood brightened further when the latest figures showed inflation steady at 4 per cent (it had been expected to rise) and there was even a poll suggesting that Labour’s massive lead over the Conservatives was starting to narrow at last. Then came Thursday and not one but two disasters for the Government, wiping out any feelgood factor that was beginning to take root.

First, it was revealed that Britain had slid into recession in the second half of last year. True, it was the mildest of downturns, what economists call a ‘technical recession’. 

The Tory vote in Kingswood fell ‘only’ 21 points, enough to give Labour a ten-point victory margin in a seat the Tories held comfortably only four years ago

The Tory vote in Kingswood fell ‘only’ 21 points, enough to give Labour a ten-point victory margin in a seat the Tories held comfortably only four years ago

But the fact the ‘R’ word was being bandied about again as part of our political discourse was a serious blow to the Government’s economic credibility and, whatever the gloss being put on this recession, there was no gainsaying the ‘S’ word — the UK economy spent all of last year mired in stagnation.

The grim economic news came on the same day the Tories were defending large majorities in ‘safe seats’ in two by-elections at Wellingborough and Kingswood. The results wiped away what remaining smiles there were on Tory faces.

Labour romped home in both. There was no sugar-coating the outcome (though the usual party hacks tried with the same old bromides): the Tories were thumped in both, confirming the widespread expectation that Labour is on track for a comfortable majority at the next General Election, maybe even a landslide.

Wellingborough was a rout. The Tory share of the vote fell by a record 38 points on the 2019 general election. It hardly helped that the Tory candidate was the partner of the previous MP (Peter Bone), who’d triggered the by-election by being forced out amid scandal and disgrace.

It suggested the Tories really had lost the plot.

Kingswood was another Tory humiliation, just on a smaller scale: the Tory vote there fell ‘only’ 21 points, enough to give Labour a ten-point victory margin in a seat the Tories held comfortably only four years ago.

The Tories have now lost ten by-elections during this parliament, the most on modern record, worse even than John Major’s hapless 1992-97 administration, which managed eight defeats.

It still went down to a landslide defeat at the hands of Tony Blair in 1997, which is where many of today’s Tories think they’re heading too.

But, plead the Tories, Starmer is no Blair. Which is true — and should make them even more concerned. There’s no great desire to see Starmer in 10 Downing Street yet the Tories are still getting trounced. How much worse would it be if Starmer was a Blair?

The blunt truth is that nothing Sunak has done — the gimmicks, the relaunches, the five promises (mostly unfulfilled), the awkward ‘meet-and-greet’ events — has improved the Government’s standing with voters. The Tories are currently polling an average of 26 per cent, down 19 points on 2019, which is pretty much where they were when Sunak became Prime Minister in the autumn of 2022.

Of course, by-elections come and go — they are the bread and circuses of modern British politics — but embedded economic hardship is harder to shake off.

The economy declined by 0.3 per cent in the last three months of 2023 on top of a 0.1 per cent decline in the three months before — hence all the talk of a technical recession (defined as two consecutive quarters in which GDP falls). Overall, the economy grew by a measly 0.1 per cent in 2023, which is as near stagnation as matters.

But these figures don’t tell the full story of the impact on people’s economic well-being. Tiny falls or rises in GDP don’t really make much difference to most folks. But GDP per capita (taking our annual economic output and dividing it by the population) is a rough guide to living standards and, by that metric, the picture is far from pretty. It fell 0.7 per cent last year.

Indeed, GDP per capita has fallen every quarter since the start of 2022, a cumulative 1.5 per cent fall to date, which inflicts more economic pain on families than any ‘technical recession’.

That is the real measure of Tory economic incompetence: a stagnating economy and falling GDP per capita, together adding up to a vicious squeeze on living standards. It is likely that the shallow recession in the second half of last year is already over and that the economy is growing again.

The latest robust retail sales figures and other key economic indicators certainly suggest that.

But the Government is running out of time to convince us that it knows what it’s doing with the economy, much less that it is steering us back on to a path of growth and prosperity.

The Treasury, the Chancellor and the Prime Minister need to raise their heads from poring over the incessant number-crunching of the Office for Budget Responsibility, which is nearly always wrong, and take strategic stock of where we are.

The economy is at risk of remaining trapped in a cycle of stagnation in which living standards are forever squeezed. Even optimistic economic forecasts suggest barely 0.7 per cent growth this year.

Next month’s Budget needs to break us out of this debilitating cycle with major tax cuts that put billions back into people’s pockets. Not tax cuts for the rich but tax cuts for the majority, for they will spend the tax cuts and give the economy a much-needed boost in the process. Otherwise, we risk stagnation for as far as the eye can see.

But it is not just the Government which needs to act. The Bank of England needs to get a move on, too. The problem is that central bankers these days are like generals — they’re always trying to fight the last war rather than the one looming in front of them.

The Bank still thinks inflation is the enemy. Hence its threats to continue to keep a tight grip on the money supply and interest rates unnecessarily high — two policies that helped put us in recession last year.

But prices will plummet in the months ahead. Inflation will be close to the Bank’s 2 per cent target by early summer. It could be lower than that before the year is out. The bigger risk now is deflation as China, with its massive manufacturing overcapacity, gears up to dump its products on Western markets on a huge scale and with massive price discounts.

The Bank needs to get ahead of the curve by cutting interest rates now and by loosening its monetary straitjacket.

Yet some senior figures at the Bank are saying they won’t rush to cut rates — even when inflation does reach 2 per cent. They want to make sure the inflation dragon has been properly slayed.

It’s difficult to know what planet they are on — certainly not the one in which people are struggling to pay their mortgages and heating bills or put food on the table for their families (or with even an inkling of what is making its way towards us from China).

A combination of substantial tax cuts from the Government and interest cuts from the Bank would inject the British economy with some much-needed verve and dynamism. Growth would return, stagnation recede.

It might not be enough to save Sunak’s skin come the election but it would at least give him an outside chance of pulling off a shock. Without it, he and the Tories are toast.

Source link

Related Articles

Leave a Reply

Your email address will not be published. Required fields are marked *

Back to top button