Burning questions for Birmingham

26 Sep 08
PHILIP JOHNSTON | As the party conference season draws to a close, does this feel like the run-up to 1979 or 1992?

As the party conference season draws to a close, does this feel like the run-up to 1979 or 1992?

Politically, the question matters to the Conservatives, who gather this weekend in Birmingham. (Incidentally, what is wrong with the seaside? Another British tradition has been junked by an unaccountable predilection on the part of the two main parties for big-city gatherings. They should all get an annual blast of ozone, if only for the sake of their sanity.)

But let us return to the question. In the year or so before 1979, it was clear that the Labour government was a busted flush. Inflation was over 20%, public debt was soaring and the International Monetary Fund had forced the Treasury to make the most swingeing cuts to public spending since the war.

The received wisdom today is that if James Callaghan had gone to the country in October 1978, he would have won. That is unlikely. As it was, he went the full five-year term, endured a winter of public sector strikes, and was trounced by Margaret Thatcher’s resurgent Tories.

In the run-up to the 1992 election, the country was plunged into a recession deeper than the one we now face. Homes were repossessed as people found themselves saddled with negative equity. Consumer spending was increasing at 8% a year, far higher than has been seen recently. The Lawson bubble, pumped up by Thatcher’s ‘brilliant’ chancellor, had burst. Yet in 1992, the Tories were returned to power. Why?

The turnout in 1992 was the highest since the 1950s and the Tories won more votes — more than 14 million — than any party before or since. Yet throughout the campaign, most people assumed Labour would win. The polls suggested as much, right up until election day.

Subsequently, Labour’s failure was blamed on the hubris of Neil Kinnock’s Sheffield rally, the soapbox engagement of John Major and the double whammy tax campaign launched by the Tories.

But in the end, the result boiled down to this: fear of Labour was greater than disillusionment with the Tories. Looking at the opinion polls today, it seems inconceivable that Labour can come back from the dead to win the next election. As a result of boundary changes, they need lose only 25 seats to be denied an overall majority, which is easily achievable, even in good times.

However, as was seen in 1992, it is not always the case that voters punish the party that causes their economic difficulties; they are just as likely to trust it to get them out of the mess.

This is Gordon Brown’s last hope: that voters will be so rattled by the economic slowdown and rising unemployment that they will stick with the devil they know. His problem, however, is that his reputation for prudent economic stewardship during ten years of growth has been so tarnished that rebuilding trust will be difficult.

The Tories, then, head for Birmingham with mixed emotions. After many years out of office, they can realistically expect victory in an election held either next year or, more likely, 2010. But what they will inherit is akin to what the Thatcher government had to deal with in 1979. If the recession proves deeper and longer than expected, revenues will be lower, borrowing will be higher and any prospect of handing over ‘the proceeds of growth’ in tax cuts will be a pipe dream.

Alistair Darling has made it clear that the government will continue to borrow in the short term because to do otherwise would mean big spending cuts or tax increases. This could last a year or more. So if the Tories win the next election it will be their mess to clear up.

Shadow Cabinet ministers are tearing up prepared speeches as they come to terms with these new realities. Promises of policy reforms that have spending implications can be junked for now, as can any pledge to stick to Labour’s current spending plans for the next few years because they will all have to be revised.

George Osborne, the shadow chancellor, will have the hardest task trying to make sense of all this without frightening the voters. Last year, it was his pledge to lift the limit for inheritance tax to £1m that was credited with turning around the party’s fortunes when they seemed to be facing oblivion at a snap general election planned, and then abandoned, by Brown.

Subsequently, Osborne has come under pressure from the party right to promise more tax cuts. But the horrible reality is, as with 1979, that an incoming Conservative government will need both to raise taxes and cut spending. The same happened in 1993, although the Conservatives then only had themselves to blame.

The real worry among Tories packing for Birmingham is that Labour will pursue a scorched-earth policy of high spending and borrowing over the next two years — leaving them to fill the hole in the public finances.

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