Labour market
Political parties and elections

A history lesson: from pay packets to election results


This is a very odd election. Conservatives talking about building, rather than selling, council homes. Tony Blair and Jeremy Corbyn sharing a campaign slogan. Stepping back from the campaign itself, even the existence of the election is an odd bit of political economy for one big reason: a British Prime Minister has chosen to go to the polls at a time when voters are seeing their wages fall.

Official data out this Wednesday, 24 hours before the Conservatives launch their manifesto, looks set to confirm what we have been projecting for some time – real wages started falling in the first three months of this year as historically slow wage rises were overtaken by fast rising inflation on the back of a higher oil price and weaker post-Brexit pound. Other official data on Tuesday is also expected to show another rise in inflation meaning this new squeeze, just two years after the unprecedented pay collapse after the financial crisis, is set to deepen through 2017.

History teaches us two things. First, that Prime Ministers do not normally choose elections at times like this, and second that when an election happens anyway the incumbent government gets a kicking rather than the increased majority the current polls imply.

Now people vote for lots of reasons – but some things matter more than others. The local matters in individual constituencies, but it averages out in a national result. Some issues are hugely important in one time period or election, but totally irrelevant in others. Privatisations in the 80s and early 90s, the deficit in 2010, whether there would be a Labour/SNP coalition in 2015, and potentially Brexit in 2017. But some issues matter come what may, with living standards top of the list.

Harold Macmillan told the country they had “never had it so good” in Bedford in 1957, and they seemed to agree, handing him resounding victory two years later. Bill Clinton wasn’t stupid when his 1990s victories were rooted in the view that “it’s the economy stupid”. When Ronald Reagan asked voters in 1980 to think about whether they were better off than four years ago, he already knew the answer. A year before, the first of the five tasks in Margaret Thatcher’s manifesto was to tackle staggering price rises.

History tells us not only that politicians invariably talk about living standards, but that they do so with good cause. Let’s start with some history. Pay has fallen in five years in which general elections have taken place since the start of the Twentieth Century – 1910, 1922, 1923, 1945 and 2010. Not one of those precedents is encouraging for the Conservative Party as the incumbent this year.

In 1910 we managed two elections in a year. The ruling Liberals lost seats in both. In 1922 a Conservative/National Liberal coalition had collapsed, with both parties losing seats in the election that followed. The next year another election saw the ruling Conservatives under Stanley Baldwin lose seats, leaving a hung parliament. The result was Britain’s first Labour government. 1945, far from rewarding Churchill for victory in the war, saw a massive loss of seats for the Conservatives with the largest ever Con-Lab swing. 2010, well we know how that ended.

It’s not just that elections don’t go well for governing parties in years with poor earnings growth – it’s the not unrelated fact that elections tend to not take place in those years, particularly since the Second World War.  Since then the average annual increase in pay during election years is 3 per cent and the average in non-election years is 1.9 per cent. Now maybe having a general election causes such an outbreak of positive energy that wage growth jumps 50 per cent… or maybe the causation runs the other way and Prime Ministers don’t do the whole Turkey and Christmas thing, unless five years is up and they have to (as was the case in 2010).

Now obviously wage rises, or the lack of them, are only part of the living standards story and other elements of it do more to favour an election this spring. The number of people actually earning those wages matter hugely too and, despite a plateauing of employment growth this year, Britain is enjoying record employment levels. Big benefit cuts that risk seeing income levels for low and middle income families actually fall in the coming years have only just started to bite, with many families seeing the biggest losses later in the decade.

But the fundamental fact remains that, in the middle of a simply catastrophic decade for earnings – one which, according to OBR forecasts, will be the worst in over two centuries – a Prime Minister has called an election by choice at exactly the point at which it is confirmed that voters pay packets are shrinking not growing. These are odd times, for our politics and our economics.