Monday, 16 December 2013

Real wage rises might save the Government

Sometimes it's hard to see a route to re-election for the present UK government. The economic winter has been long and cold; left-leaning voters have defected from the Liberal Democrats in their droves, gathering around Ed Miliband's relatively left-wing rhetoric, while the challenge of the United Kingdom Independence Party shows little sign of going away.

All in all, there seems little respite for Britain's governing Conservatives, who have lagged in the polls for two years now. But there is one single chink of light: rising real incomes, which might save them in the medium term. Macroeconomic numbers have been telling us for some time that Britain is on the mend, but now it's becoming more and more apparent on the ground. House prices are likely to surge ahead next year; the construction industry is growing quite rapidly again; every economic update seems to upgrade Britain's growth prospects. That might not be that sustainable - it looks for all the world like yet another house price boom - but it will last us for this Parliament, that's for sure.

This will definitely have political consequences, and it may help the Conservatives to carry on in office - as a minority, perhaps, but power is power. American political scientists have long looked at real disposable incomes, rather than macroeconomic indicators such as unemployment and inflation, to explain election results: some recent work has suggested that President Obama's 2012 victory was partly down to voters' wages growing in the months leading up to the November 2012 contest.

And the main personal finding of recent work by the Office for Budget Responsibility? That Britons' incomes will start to go up in the last few months of 2014, before growing more quickly just before the upcoming General Election of 2015.

Things might look bad in No. 10 Downing Street right now - but as regular readers will know, 'Public Policy and the Past' has long been unimpressed by Labour's performance in local government elections, and in the polls. There will be a swingback - there always is. Mrs Thatcher looked in dire trouble in 1982 and 1985, only to storm back to victory two years later.

That might not happen. But the Government still has a good chance, if the OBR is right about wages. If incomes continue to fall, of course, they're toast. But the outcome of the next General Election is still uncertain. That's easy to say, and hard to feel when you look at such apparently stable polling. But it's where we still are now.