The Tory ‘feelgood factor’

Despite the bleak national economic picture, people in Conservative held seats are doing better than those in Labour areas.

The Conservatives have form when it comes to winning re-election whilst presiding over deep cuts in public spending, high unemployment and often sluggish growth. As an excellent pamphlet – Cameron’s Trap by shadow minister Gregg McClymont and academic Ben Jackson – has argued, both Stanley Baldwin in the 1930s and Margaret Thatcher in the 1980s were able to achieve this feat by ensuring that living standards rose for enough of the population to ensure a viable electoral coalition.

The circumstances today are outwardly similar – a Tory-led coalition has brought forward major public spending cuts whilst unemployment has risen and the economy has weakened. And as in the 1930s and 1980s, the terrible national statistics camouflage a more nuanced regional picture.

The 1930s are often remembered as the decade when unemployment passed 20 per cent, but it was also the decade of expanding car ownership, regular holidays by the seaside for many families and the growth of a mass market in domestic appliances such as vacuum cleaners, radios and washing machines. The Jarrow marchers of 1936 set off from an area extremely badly hit by the downturn in coal mining and ship building but on their way toLondonpassed through areas such asBedfordandLuton, both of which were benefitting from the growth of new light industries and were relatively prosperous.

Similarly the 1980s saw unemployment pass the three million mark but champagne sales doubled to twenty million bottles a year. Television of the time featured not only Boys from the Blackstuff marking the impact of unemployment on Merseyside but also Harry Enfield’s comic character Loadsamoney, who, crucially, was not a city banker but a plasterer.

It is all too easy, when examining the 1980s or the 1930s to concentrate on the often appalling national economic figures and assume that no government could ever win re-election whilst overseeing such a mess. As Jackson and McClymont remind us, that would be a mistake.

All politics is local

There is a danger that something similar could be happening now. The recession of 2008-09 and the weak recovery since have affected the different regions of theUKto quite different extents. We are not, as the chancellor is so keen to tell us, ‘all in this together’.

According to the most recent figures, unemployment stood at 8.4 per cent (on the International Labour Organisation measure) at the end of 2011, its highest rate since 1995. Youth unemployment is over one million and long term unemployment is rising.

Jonathan Portes, a former chief economist at the Cabinet Office and the current head of the widely-respected National Institute of Economic and Social Research, has convincingly argued that the ‘unemployment gap’ in this recession and recovery has been the highest and longest of any period since the Second World War. That is to say, the gap between what the unemployment rate actually is and where it would be if macroeconomic conditions were ‘normal’ is unusually large. Government policy should be focussed on bringing this gap down and so Labour is surely right to be arguing for policies focussed on ‘growth and jobs’.

But, if unemployment is at a seventeen year high then surely there should be less support for the Conservatives and Liberal Democrats than opinion polls currently suggest?

To start answering this mystery we need to remember the lessons on the 1930s and the 1980s and delve into the regional figures. Here we see quite a different picture, as summarised in the chart below:

Chart 1

Unemployment in traditional Labour areas is currently much higher than in traditional Conservative areas. In North East England it is 11.2 per cent, in Yorkshire and the Humber it stands at 9.9 per cent, in theNorth Westat 9.3 per cent and inWalesat 9.0 per cent. By sharp contrast, unemployment in the South West is 6.1 per cent, in the South East it is 6.5 per cent and in the East of England it is 7.0 per cent.

To give some sense of the data, whilst the UK’s overall level of unemployment is comparable to that of the struggling USA, the picture in the south is actually far closer to that of booming Germany. Meanwhile in the north, the best comparators are crisis-hit Bulgaria or Hungary.

It is, of course, hugely important to avoid crude caricatures when discussing the regional picture; it’s not simply a case of it ‘being grim up north’ and fine in the south. The north has its share of bright spots whilst the south has pockets of weaker data and higher deprivation, but the overall regional picture does tell us something, even if it brushes over nuances.

As can be seen in the graph, the midlands andLondon– likely to be key election battle grounds – are somewhat more mixed. Unemployment is 10.0 per cent inLondon(the second highest regional level in theUK), 9.3 per cent in the West Midlands (on the higher side) and 8.2 per cent in theEast Midlands(broadly in line with the national figures).

Looking not just at unemployment levels, but how they have changed over the past year (since December 2010) reveals some interesting trends. Over the UK as a whole, the unemployment rate rose by 0.5 per cent over 2011, but in the North West it increased by 1.6 per cent and in the North East by 1.1 per cent – respectively three times and twice as fast as the national rate. Meanwhile in the South East it rose by just 0.1 per cent, it did not increase at all in the South Eest and in theWest Midlandsit actually fell by 0.4 per cent.

Broadly stated, areas that voted Conservative have both lower unemployment and have seen less of a rise in unemployment over 2011. Any Labour strategy aimed at channelling popular anger over poor economic performance needs to take this into account.

Zooming into even more local figures reinforces this picture. The broader measure of unemployment (the internationally comparable ILO numbers) are only available on a regional basis, but figures for the claimant count – a narrower measure counting only those in receipt of Job Seekers’ Allowance – are available on a constituency by constituency basis.

The national rate of claimant count unemployment is currently 5.0 per cent. In Labour held seats, the rate is an average 5.2 per cent, whilst in Conservative held seats it is considerably lower at 2.9 per cent. In the 50 most marginal Conservative held seats (using the 2010 boundaries and results) it is 3.6 per cent, well below the national average and that of Labour held seats. By contrast the claimant count in the 30 most marginal Labour seats is 4.7 per cent, a touch below the national average.

In other words, on the most recent data, Conservative held seats have considerably lower unemployment than Labour held ones and even the 50 most marginal Conservative held seats are doing a lot better than the national figures suggest. Perhaps most worrying, from an electoral strategy point of view, the thirty most marginal Labour seats – the ones the Conservatives need to take to win an overall majority in 2015 – are also doing better (in unemployment terms) than the grim national data suggests.

The economy in 2015

Whilst predicting what the jobs market, or the wider economy, will look like in 2015 is almost impossible to do with any degree of certainty, some educated guesses can be made.

What happens to employment over the next three years will depend to a large degree on the direction of the rest of the economy. In terms of public sector employment though, there is greater certainty. The Office for Budget Responsibility (OBR) has estimated that 710,000 public sectorjobswill be lost between 2011 and 2017 as a result of the government’s planned spending cuts. Whilst the OBR does not provide regional economic forecasts, it seems fair to calculate these job cuts pro rata by where public sector workers are currently located. For example, 11.4 per cent of all public sector workers are currently located in theNorth West, and so assuming that the job losses were proportional then theNorth Westis set to lose 81,075 public sectorjobs. These expected job losses (as forecast by the OBR and regionalised pro rata) can then be compared to current regional employment levels. Simple maths tell us the greater the share of public sector workers in the overall workforce the greater the expected hit to employment in each region from the government’s spending cuts. Chart 2 summarises these results for the English regions (the picture is somewhat more complex in the devolved nations where local legislatures might be able to affect the results by adopting different policies).

Chart 2

As can be clearly seen, the worst hit regions from the direct impact of the government’s austerity policies will be the North East, Yorkshire & the Humber and theNorth West. The least affected will be the East ofEngland, the South East and theEast Midlands. The coming public sector job losses then can be expected to simply add to existing regional inequalities and trends.

Turning to private sector job creation, the picture is a lot less clear. Whilst the OBR has forecast reasonably strong private sector job growth, this forecast is more dependent on other factors (consumer spending, investment, etc) and so more subject to uncertainty. Again the OBR provides no regional breakdowns of its forecasts but it seems fair to assume that, in the absence of a very active regional policy, then private sector job creation will mainly come in areas where there is already strong private sector employment.

An analysis carried out by PricewaterhouseCoopers after the Comprehensive Spending Review in October 2010 tried to calculate the total number of job losses due to spending cuts in both the public sector and the related impact on private sector suppliers to government. The pattern it found is the familiar one: the worst hit regions are in the north,WalesandScotlandwhilst the least affected were the south and east ofEngland.

The Chartered Institute of Personnel & Development, in its most recent Labour Market Update, reported similar findings with a growing north/south divide in private sector employers’ hiring intentions.

Stepping back from those out of work to look at those in work, a similar regional disparity can be found. Recent work by the Resolution Foundation has shown the regional distribution of households by income (the data is from 2009/10 but the pattern is unlikely to have changed a great deal). The chart below shows low to middle income families by region as a percentage of the total population.

Chart 3

Constituency level data on wages reveals a similar picture. Mean gross annual fulltime earnings for the UKas a whole are £26,148. In Labour held seats this falls to £24,192, 7.5 per cent below the national average, whilst in Conservative held seats it rises to £27,977, 7.0 per cent above the national average. The average worker in a Tory held seat is some 15.6 per cent better off than the average worker in a Labour held seat.

Which economy?

McClymont and Jackson are certainly right to worry about ‘Cameron’s Trap’; history shows that it is perfectly possible for Conservative governments to oversee sluggish growth, rising unemployment and public spending cuts whilst winning re-election. The crucial factor is that enough people are doing comparatively better to sustain an election winning coalition. 

Whilst the national data on employment and unemployment suggests that the jobs market is performing abysmally, there are important regional caveats to this. Whilst headline unemployment remains very high, it is certainly much higher in Labour held than Conservative held seats and regions. The most marginal Conservative held seats are also crucially doing better than the national average. Whilst it will be the jobs market of 2015 which is a decisive factor in the next election, the trends for both public and private sector employment suggest that this picture of large regional variations will continue. A similar pattern can be found when one looks at the incomes of those in work – in general, people in currently Conservative held seats are doing better than those in Labour areas.

It’s often noted that the next election will be decided by the economy. The crucial question for electoral strategists is which economy – the local or the national?

Duncan Weldon is an economist