Losing is the new winning

6 Feb 09
COLIN TALBOT | Predictions of a ‘short, shallow downturn’ in the UK economy have been proved wide of the mark.

Predictions of a ‘short, shallow downturn’ in the UK economy have been proved wide of the mark. Presiding over a deep recession could have long-term repercussions for the winners of the next election

The next general election is now starting. And if I was leading any of the main parties, I’d be secretly wondering if this wasn’t a good election to lose.

Last week, the International Monetary Fund predicted the world economy is very close to a global recession. This is very bad news for the UK because the Pre-Budget Report’s optimistic forecast of a short, relatively shallow, recession in the UK was based on the assumption that the global economy would not go into recession and would drag us back out of one.

The UK’s public finances were widely reported to be pretty dire, with total public sector borrowing rising to almost a trillion pounds. But this was based on a short, shallow recession — the longer and deeper the recession, the worse this public finance problem will become.

The Institute for Fiscal Studies’ influential ‘Green Budget’, also published last week, predicts that it will take a generation to pay off the accumulated public debt from a combination of structural deficit and the various rescue packages.

As the Policy Exchange think-tank said in Public Finance last week, the Conservatives have chosen to take the path of fiscal rectitude (‘the waiting game’, January 30–February 5). But it is not clear whether they have really thought this through. Even on the PBR’s optimistic assumptions, if they were to simply halt the growth in public debt — as they seem to saying they will — they would need to cut public spending by an excruciating 5% a year in real terms.

The consequences would be dire — economically and politically. A drastic cut in public spending — just as the country was pulling out of recession — would put a dramatic brake on the economy, and could even tip it back into recession. At the very least it would slow the recovery and cause substantial public sector job losses.

Cutting public spending to this extent would be difficult, but so would be the main alternative — substantial tax increases. This is an unlikely option for an incoming Tory government, but not unprecedented.

Politically this would be, to put it mildly, difficult. The promise that fiscal rectitude would inevitably lead to economic growth and happiness would be hard to sustain and would make the prospect of a one-term Conservative government very likely.

So Tory leader David Cameron might well be ever-so-quietly thinking that maybe it would be better if Labour won the election and had to clear up its own mess — and suffer the consequences.

What about Labour? If, by some miracle, Prime Minister Gordon Brown achieves a second bounce and claws back the Tory lead he will have roughly the same set of problems.

Of course, he will not have promised to cut borrowing so he’ll have more leeway in the public sector. But, even so, public spending will have to be reined in hard, which will affect Labour’s natural constituency more than others. And the prospects of winning a fifth term would be miniscule. So losing the election and maybe getting a one-term Tory government might be a better long-term outcome for Labour.

It is highly doubtful Brown will see it like that, even in his darkest moments, because the likelihood of him still being Labour leader next time around would be remote. His ‘legacy’ would thus be of the man who became prime minister by default and lost the first and only election he fought as leader (unlike his predecessor).

Doing worse than Tony Blair would be humiliating enough — but doing worse than John Major, who managed to win one election après Thatcher?

So the danger for the Conservatives is they win, inherit an impossible mess, their policies fail and they get punished by the electorate. This would not just be a short-term catastrophe — they have already made the ‘generational jump’ and, if Cameron fails, where would they go next?

For Labour, the danger is they win and the twin effects of recession and fiscal crisis — combined with the problems of an unprecedented fourth term — destroy the government.

The likelihood of getting back into power would be remote at best. But if they lost, were able to make their own generational shift and come back as new New Labour?

US President Barack Obama is the model both parties are pinning their hopes on. But Obama has what neither Labour nor Tories have — both being a new government who can’t be blamed for past failures (which Labour lacks) and having interventionist policies that just might work (which the Tories reject).

So ask yourself — would you really want to win the next election? Somewhere in the depths of sleepless nights, I wouldn’t mind betting Tory and Labour politicians are having this nightmare.

Colin Talbot is professor of public policy and management and director of the Herbert Simon Institute at the University of Manchester

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