The final lap (Part 3)

(for introduction and part one go here, part two here)

2008-2009 The credit crunch

Back at the end of 2007 I predicted that Labour would never be able to regain a lead in the polls under Gordon Brown (it's a prediction I still stand by - and so far I haven't embarrassed myself!), unless some unforeseen event came along to turn politics upside down. Since then, we've had two major unforeseen events come along and shake up politics. While there have been lots more of the little negative news stories that I talked about earlier (Smeargate, Ghurkas, 10p tax rate, botched reshuffles, etc) they all just add more the "cost of governing" - the negative things that stick to a government and sap their support. These two deserve exploration in their own right though - the credit crunch and the expenses scandal.

The credit crunch and recession has been responsible for several ups and downs in the polls. The negative news in 2008 budget probably contributed to Labour's dire ratings in the summer of 2008 (though Labour disunity and infighting and the 10 pence tax row would also have played major roles). After the bank bail out plan in October 2008 however it provided a significant boost in Labour support, which happened largely in tandem with recovering public optimism on the economy.

My own take was that the public initially underestimated how bad the recession would be, they thought the bank rescue plan would avoid any real pain and moved back to Labour in response to what they perceived as good handling of the economic crisis. If I am right in thinking that a large part of Labour problem is that they have not succeeded in putting across a mission, a reason to keep them in power, then it also solved that - Labour were there "to save the economy". This recovery in the polls fell away again in January 2009 as several high street stores (most prominently Woolworths) went to the wall, and it became clear that recession hadn't been averted.

It's important not to ascribe all of Labour's misfortunes to the economy. They were trailing very badly in the polls before the credit crunch began, they were saddled with an unpopular leader and a lack of a clear message before it happened. Obviously a deep recession is going to lead to a certain "feel bad" factor, but it also had potential to help Labour. If there is an air of crisis people may want an experienced hand in charge (we repeatedly saw polls during Labour's recovery in late 2008 that showed people saying they wanted Brown in charge now... but Cameron in charge after the next election), and the crisis played to Brown's strengths of character, he remains far more sure footed and confident when talking about economics than more emotive, human interest issues.

This brings us to one of the major questions that remain to be answered before the next election: what happens when economy improves? One can make a case for it having a positive effect for Labour, a negative one, or no effect at all. If the credit crunch is actually helping Labour (because it plays to Brown's strengths, or makes them less likely to risk a change of government), a end to recession could make things worse for them. Alternatively, if the economy improves people may feel generally more positive to the government and think they've done a good job getting up out of it (though the end of the recession in the 1990s did nothing to help Tory fortunes). It could of course, have negligible effect, or none at all, or positives and negatives could cancel one another out.

What we've seen so far does not suggest the news will be good for Labour, since public opinion already seems to be increasingly optimistic about the economy. Economic optimism turned a corner around February 2009, and is now rising strongly. In June Ipsos-MORI showed more people expected the economy to improve than thought it would get worse - the highest economic optimism figure for 12 years. The public already think we have reached the bottom of the recession and are on the way back upwards, but as yet there is no sign that Labour's deficit in the polls is falling.

It's possible that the actual announcement that the recession is over and Britain's growth rate is back in positive territory may prove a tipping point - in the 9 months that are left it's one of the few potential game changing moments that remain, but my guess from the economic optimism figures is that people are already factoring in the end of the recession and, beyond the effect of a general feel-better factor, it's not going to have a huge effect.

Aside from the state of the economy, the credit crunch has a second, probably more important impact on our politics; the bigger legacy it leaves behind is paying for the rescue package. Both parties have sought to draw dividing lines over this in recent months: Labour sought to portray the election as a choice between Conservative cuts and Labour investment. The Conservatives have sought to paint it as being about Conservative honesty in facing up to cuts vs Labour will make cuts too but won't admit it. The polls so far suggest that the Conservatives are winning the argument with the public - 64% of people told ICM they thought spending should be cut, a large number of YouGov polls have now shown that people would prefer spending cuts to tax hikes when it comes to balancing the budget.

However, this doesn't mean that Labour's claim that the Conservatives would cut spending more than them has not been believed - it has. Going back to that ICM poll, 22% thought the Conservatives wouldn't make enough cuts, 42% thought they'd get it about right, and 30% thought they'd cut too much. In comparison, 46% thought Labour would cut too little, 26% thought they'd get it about right and 21% thought they would cut too much. Now, at one level it shows that far more people think the Conservatives would strike the right balance with spending cuts - 42% to 26%. What it also shows however, is that people do indeed think that the Conservatives would cut more than Labour would.

Right now, this seems to be good news for them, as people are telling pollsters they want spending cuts. However, abstract spending cuts are far more popular than concrete, specific examples. When people are asked what areas cuts should fall upon, the answers are normally things like international development - areas where very small amounts are spent (and which the Conservatives have ring fenced anyway!). Any incoming government will actually need to find savings in big spending departments like education, health and defence. A far proportion of the public don't seem to accept that it is necessary to cut borrowing in the first place - while most of the poll questions we've seen on the topic have asked what people's preferences are on the assumption that borrowing needs to be reduced, MORI have asked questions giving people the option of just leaving things as they are....and 31% of people opt for it.

At the moment, the tax and spending argument is all going the Conservative way, and broadbrush accusations that the Conservatives would cut services will probably backfire with an electorate that wants cuts. Since I first drafted this piece, Labour seem to have dropped the Conservative cuts vs Labour investment line anyway (almost certainly the right decision, given the way the numbers seemed to be going!) but I suspect that public spending and cuts will still be the battleground that the election is fought upon and that, sooner or later, the political parties will manoeuvre themselves around a new division over the issue.

Tomorrow - part 4, the expenses scandal.