Following yesterday's Autumn Statement, Professor Patrick Diamond reflects on Jeremy Hunt's efforts to rebuild the Government's economic credibility, the parallels with 1992, and the scale of the economic and political challenge facing the Labour Party in the run-up to the next general election.
Speaking at the Mile End Institute earlier this week, John Smith's former Policy Director, David Ward, insisted that the election from which the current Labour leadership should learn lessons was not 1997 - when New Labour famously secured its landslide victory - but 1992. That year, the Conservative Party staged a remarkable comeback under the leadership of John Major. Having plunged to new lows of political unpopularity following a deep recession that inflicted record UK unemployment and home repossessions, the Conservatives were able to 'snatch victory from the jaws of defeat' and beat Neil Kinnock's Labour Party.
Although the election result in 1992 was close, resulting in a parliamentary majority of 21 seats, the Tories still finished seven points ahead of Labour in share of the popular vote (and won the highest number of votes for any party in a UK general election). The Conservatives were successful in retaining English marginal seats heavily populated by so-called swing (or 'median') voters, epitomised by the spirited retention of the iconic Basildon constituency by the late Sir David Amess. So, what can the governing party learn from the 1992 experience thirty years on?
Writing in The Financial Times, the columnist Chris Giles reflected that the new Tory Prime Minister, Rishi Sunak, 'hopes to emulate John Major's election win 30 years ago, when he took over from an unpopular prime minister - Margaret Thatcher - and promised a new start and a brighter economic future'. Giles quotes a Conservative political strategist who recently mused: 'It's 1992 again ... By 2024, we could be seeing some green shots of recovery, we'll say the tough decisions we took are paying off, and we'll be asking "What's Labour's plan?" You never know'.
Jeremy Hunt's Autumn Statement was intended to show that tough choices now will be rewarded by the time of the next election with declining inflation and the resumption of economic growth. There was a striking attempt to recapture the political centre ground, emphasising the current government's values-driven commitment to investment in public services. The Chancellor promised that benefits and the national minimum wage will continue to rise in line with earnings. Meanwhile, taxes would rise for the better-off, as those earning more than £125,000 a year would pay the 45p higher rate. Windfall taxes on energy companies were set to increase.
The Chancellor stressed that the NHS and school budgets would be protected alongside additional money for social care. Capital investment and R&D spending would be exempt from further cuts. To emphasise his dash to the political centre followed the ill-fated libertarian experiment of Liz Truss, Hunt announced that Sir Tony Blair's former delivery guru, Michael Barber, would advise the Government on skills policy. The former Labour Cabinet Minister, Patricia Hewitt, will make recommendations on improving health and social care efficiency.
Although there are substantive criticisms that can be made of Hunt's plans - notably his failure to address the UK's deteriorating economic fundamentals - the Opposition would be wise not to ignore the Chancellor's dexterity. Hunt will insist that despite a tough economic climate and formidable geo-political headwinds, including the war in Ukraine, the Government is both protecting the most vulnerable (not least by retaining the electorally powerful pension triple-lock) without sacrificing long-term investment.
Hunt's trump card is that however grim the situation now, a Labour government would make things considerably worse. Unless Labour was prepared to endorse all of the proposed public spending cuts and tax rises announced in the Autumn Statement, the Party would either have to borrow more or raise taxes further after the next election. Moreover, if the rise in debt interest payments is not quite as severe as currently projected, Hunt may have additional fiscal headroom ahead of the next election for giveaways before polling day.
Sunak and Hunt will be hoping that working and middle-class voters in marginal constituencies still eye the prospect of a Labour government warily. The Conservatives believe that fundamentally these voters do not trust the Labour Party to manage the economy and safeguard their aspirations. As in 1992, if an alternative government is perceived to pose an existential threat to the increasingly precarious prosperity of middle-income households, they will not hesitate to opt for 'safety first'. The electoral appeal of 'better the devil you know' still has currency.
The odds must still be against a Conservative victory in 2024. The Government's loss of economic trust and credibility following Kwasi Kwarteng's 'Mini Budget' was severe. After twelve years in power, it is more difficult to argue persuasively that Britain's economic problems are globally created. The forecasts presented by the independent Office for Budgetary Responsibility (OBR) suggest that living standards in the UK will not return to pre-pandemic levels until 2028, underlining the scale of the economic pain ahead. Real household disposable income will decline by 4.3 per cent in 2022-23, the largest fall since records began. In the meantime, Hunt's stealth tax rises inflicted by freezing thresholds will hurt households in Middle England. The Conservative Party is bound to be demoralised by further increasing taxes given there is so little left to cut from public services.
Nonetheless, Labour underestimates the scale of the political and economic challenge laid down by the Autumn Statement at its peril. Despite the adverse economic circumstances, victory at the next election is by no means assured - as the 1992 experience illustrates all too well. To avoid a replay of that election, Labour must continue to focus on building governing credibility. If Labour wants to be trusted to govern for the whole country, it must wrestle back the initiative on tax while spelling out in detail its concrete plan for long-term economic growth.
Patrick Diamond is Director of the Mile End Institute and Professor of Public Policy at Queen Mary University of London.